The Leverage Equation

by Todd Tresidder

  Then reach out to them and build genuine connections.

  6 – KNOWLEDGE AND EXPERIENCE LEVERAGE

  Knowledge is of two kinds. We know a subject ourselves, or we know where we can find information upon it.

  – Samuel Johnson

  Knowledge is the foundation of all wealth-gener-ating processes.

  Without knowledge, natural resources would just be dormant in the ground. Knowledge is what converts resources into something with economic value.

  Similarly, most of the value of manufactured goods is in the knowledge behind the manufacturing processes that create them.

  In other words, physical capital owes most of its value to intellectual capital, but the connection ends there because physical and intellectual capital each have very different characteristics.

  Intellectual capital is different because it’s created out of thin air, retained, and distributed without any limits. It’s limitless because it’s an infinite resource (unlike land, buildings, machinery). Physical capital is limited to the resources in your possession.

  In addition, intellectual capital is different from physical capital because each time you transfer knowledge the recipient is enriched, but nothing physically leaves the creator. Both can possess the same knowledge, thus creating greater abundance. Physical capital is different because it leaves you when you give it away, making you poorer. Only one person can possess it, thus creating scarcity.

  Intellectual capital grows when used and depreciates when not used. Physical capital does the opposite because it gets consumed through use and depreciates in value.

  These differences are important to growing your business. Knowledge shared between two people effectively doubles the amount of knowledge capital within your business, and there’s no price to pay for that growth. That makes knowledge leverage a key tool in your wealth building arsenal.

  But surprisingly, it’s an asset that’s rarely valued properly, thus opening up opportunity for competitive advantage.

  One of the reasons many people misunderstand knowledge as an asset is because physical capital’s inherent limitations have conditioned us to think in terms of scarcity, but knowledge is different because you can give it freely and it can still give back to you. It operates under a different set of economics.

  For example, the more I give away my knowledge freely on the Financial Mentor website (https://financialmentor.com), the more the business grows. The key is to find cost-efficient forms of communication that create more value to the business than they cost. Email newsletters, video, and podcasts are all examples.

  The Grateful Dead are often credited with being early pioneers in this strategy. They were known for their live shows and they allowed a massive bootleg market of live show recordings to develop, for which they received no compensation. It was all freely distributed music. This created a loyal fan base who also bought their studio albums and ensured that all their live shows throughout the world would sell out immediately with no advertising or promotion.

  In short, the intellectual capital of free bootleg recordings did all the promotion without them spending a dime, and this strategy foreshadowed similar content marketing strategies on the internet three decades later.

  THE 2 TYPES OF KNOWLEDGE CAPITAL

  Leveraging intellectual capital is important because the essence of business competition is relentless innovation to develop a competitive advantage. The source of that innovation is knowledge.

  The idea is to always work smarter, not harder. You hire people smarter than yourself and innovate for greater efficiency. You don’t have to reinvent the wheel to improve. Everything you need to know already exists if you can just find the correct source of knowledge to leverage.

  But before we can leverage knowledge, it’s helpful to organize it in two different ways:

  Tacit or Unrecorded – knowledge that only exists in someone’s head, making it hard to leverage through sharing.

  Explicit or Recorded – knowledge that has been documented in some way so it’s easy to share and leverage.

  Notice how knowledge and systems leverage connect. A system is where you convert tacit knowledge into explicit knowledge through a business system.

  Examples of recorded knowledge as part of a business system include…

  Bootleg recordings of Grateful Dead shows

  A book

  An online article

  Courses

  Videos

  A standard operating procedure

  Each of these examples is a form of explicit or recorded knowledge leverage creating intellectual capital. The key point is that when tacit knowledge is made explicit through documentation or recording, it lowers the cost of distribution.

  That’s why knowledge leverage is also connected to technology leverage because technology has created an unprecedented growth in cost efficient ways to make tacit knowledge explicit and then distribute that knowledge so it can compound. Similarly, information sharing is multiplied through network leverage using wireless communications, high speed internet, and multi-media communications.

  As stated in earlier chapters, all of the leverage types are more connected than what appears on the surface, and this is yet another example of how that works.

  Similarly, knowledge leverage is related to time leverage because you don’t have enough time to do everything; so you surround yourself with a specialized team of advisors, coaches, mentors, employees, vendors – that deliver the expertise you lack so you can grow your wealth and achieve your financial goals.

  KNOWLEDGE VERSUS INFORMATION

  The problem with knowledge is that it’s frequently confused with information. But knowledge is more closely aligned with experience because you can’t truly know something until you have direct experience applying the information.

  Knowledge requires the mental process of understanding, comprehension, and learning inside your mind. It results from absorbing information and applying it through action resulting in experience.

  Conversely, the equation flips upside down when you want to communicate knowledge because the only alternative is to create messages of information. This information doesn’t carry knowledge, but it can be assimilated, organized, and applied by the recipient into their own knowledge structures. The receiver’s knowledge will be different from the transmitter’s, even though it’s the same information – because of the different experience base, values, and perceptions unique to the recipient that color that information and affect how it’s assimilated.

  Using this book as an example, I have direct knowledge through experience of the wealth building strategies that I communicate via the instruction in this book. You then reassemble that instruction into your own knowledge. The more you work with and repeat the learning, the more accurate your knowledge will become. But your knowledge and my knowledge will never be identical because our experience is different.

  It’s a bit of an intellectual distinction, but it’s a mistake commonly made and worth understanding because it connects to risk management, which is a central principle to strategically building wealth and investing for more consistent, profitable returns.

  The greater your knowledge based on actual experience, the lower your risk.

  For example, you can read information about mountain climbing and you can attend classes. But your risk of making a catastrophic mistake is dramatically higher than someone with 20 years of actual climbing experience.

  Same information about climbing + less experience = increased risk of failure

  Your risk of failure is always greatest when you have only information, but little direct experience. As your experience increases, information turns to knowledge and risk declines.

  With that said, let’s look at the three different ways you can leverage knowledge:

  Leveraging your time by hiring the expertise of others.

  Leveraging your own knowledge by becoming the go-to expert.

  Leveraging the knowledge already inside
your organization.

  HIRE THE EXPERT

  Let’s start with hiring an expert.

  As stated earlier, hiring a team of people so you can benefit from the specialized expertise you lack is closely aligned with time leverage. You can’t master the intricacies of everything, so the smart alternative is to hire experts that live and breathe a given subject every working day as their profession.

  For example, maybe you want to explore rent-to-own real estate but you have questions. You could spend days researching the subject to try and gain the necessary expertise, fact checking and resolving all the contradictory information.

  Or you could contact someone who lives and breathes the subject every working day because that’s his profession. Get someone who has spent years learning the intricacies of their craft and pay them for efficient access to that depth of knowledge, thus saving you time and headaches, and frequently money (if you find the right expert).

  In this example, the expert can immediately advise you regarding how to do rent-to-own; warn you about the tricks and traps to watch out for; connect you to the best resources; include ready-to-go legal contracts; and provide you with everything you need to make it happen, all in a one-hour consultation.

  The point is: you’re not just leveraging the knowledge and experience that a true expert can deliver; you’re also leveraging his contacts and resources to save you implementation time while also expanding your network.

  It rarely makes sense to use your scarce time re-creating the wheel when someone else is better qualified and can do it faster and cheaper. Time that you spend learning about each profession so you can do-it-yourself is time you’re not spending working on your business.

  Instead, the smart alternative is to leverage the intelligence, time, and experience of others. Find people who have walked the path before you, learn from them, hire them, and model their behavior. They have the knowledge.

  But this brings up an important distinction regarding the complexity of the task and the frequency of use. For example, I hire experts for complex coding tasks and system development on my website because the complexity would take me way too much time and effort to master.

  However, every week my work requires simple coding tasks that take less time and hassle to do myself than it would take to explain to someone else. The result is I’ve trained myself to do basic coding for simple tasks that occur regularly.

  When it comes time to develop these new skills, one of my favorite strategies to save money is to buy an information product (where the knowledge is made explicit) rather than a service solution where the knowledge is tacit. For example, you could hire my personal coaching services to teach you how to use leverage to accelerate your wealth growth, but technology leverage has made this knowledge explicit through this book for pennies on the dollar. Similarly, I offer an entire course teaching you how to design your personalized wealth plan (that this book is excerpted from and that took over two years of full-time effort to build); and you can leverage all that knowledge for little more than it would cost to coach with me for an hour, all because of technology and marketing leverage.

  Books and courses are two of my favorite cost-effective sources for explicit knowledge leverage, giving you access to experts you otherwise could never learn from. You can also access explicit knowledge from podcasts, educational audio sets, webinars, and other educational resources.

  In summary, hiring an expert as a service makes good business sense when you need the expert’s personal involvement. Leveraging their knowledge through a product makes sense when you just need the information.

  BECOME THE EXPERT

  The second way you can apply knowledge leverage is to master a subject so deeply that you become a high-demand expert in the field. This is an appropriate strategy when your goal is to increase your hourly earning capacity.

  The key idea is: you become the expert who knows what others wished they knew, so they gladly pay to leverage your knowledge. It’s the mirror image of the previous “hire the expert” strategy where you become the expert that others hire, increasing your income as a result.

  Supply and demand dictates that money follows that which is in rare supply by forcing higher prices. There’s no shortage of ignorance, but genuine expertise that solves high value problems is rare.

  That means a proven path to increasing your income is to compound the growth of your intellectual capital first, and then sell that knowledge so others can leverage it.

  The way you elevate yourself to expert status is by building a platform that showcases your expertise. Example strategies include:

  Write useful, cutting-edge articles.

  Pursue free publicity by being a guest expert on other experts’ podcasts.

  Be interviewed by other writers for publication in other media outlets.

  Write a book. 

  Expert positioning changes your service business from a commodity service provider competing based on price, to an in-demand, go-to expert that commands premium pricing. You immediately increase your time-for-money hourly earning capacity.

  In investing, this concept is known as “an edge,” and in business it’s called “a competitive advantage.” It’s where your knowledge and experience built into your business offerings are so superior that there’s really no competition.

  Experts with specialized, high-value knowledge can negotiate deals based on performance (instead of hourly rate), allowing you to leverage the client’s business for profit so that it’s not dependent on your time.

  For example, an online marketing expert or course development expert could hire herself out for a percentage of the income generated. She could create a single marketing funnel that could pay millions of dollars in the right situation, or she could earn long-term residual income based on a percentage of sales for a course she developed for a high-profile expert who lacked the back-end product and didn’t have the time to create it any other way.

  These agreements can be extremely lucrative if you’re good, and if you can identify businesses with large gaps in profitability that you can remedy.

  Alternatively, you can repackage your high-value knowledge into books, courses, video instruction, and other information products. Think of it as knowledge-in-a-box by converting your knowledge from tacit to explicit. This changes your expert business from service to product-based revenue so you can create a scalable business model that disconnects the relationship between time and money.

  In short, when you establish yourself as a high-value expert, there are multiple ways to leverage that knowledge into dramatically increased income for your wealth plan.

  DON’T FORGET THE KNOWLEDGE INSIDE YOUR ORGANIZATION

  Finally, the third way to leverage knowledge is to better manage the knowledge already inside your organization.

  No business can function without the knowledge inside the head of various staff members as well as the shared knowledge that makes up all the systems that govern how the business operates.

  If you’re not clear on the value of the intellectual capital inside your business, just imagine everyone in your company losing their memory so that all knowledge related to the business is now gone. Then arrive the next day at work with nobody knowing what to do and try operating the business to turn a profit. Nothing would work.

  Now imagine how much it would cost you to recreate the lost intellectual capital and to restore all business operations to their former functionality; and that should give you some idea how valuable the knowledge is inside your organization.

  Unfortunately, many businesses don’t value knowledge as a resource that must be managed and leveraged, thus causing missed opportunities to improve business processes and to secure and improve profitability through the innovative ideas of staff. These businesses are also in danger of letting important knowledge walk out the door when employees leave.

  Equally surprising is how some companies will hire consultants at exorbitant fees when they already have th
e required expertise just down the hall – at no additional cost.

  One leverage strategy to better use the knowledge in your business is to multiply the intellectual capital through internal training processes, so that unique, proprietary knowledge about customers, competitors, products, and techniques that resides in the mind of one employee gets shared with many other employees. This is critical so that no single employee has sole possession of unique and important knowledge.

  This connects back to technology leverage and standard operating procedures where employees commit their tacit knowledge into explicit knowledge through training materials that make it efficient to share, thus ensuring it never gets lost.

  This requires creating both a culture and infrastructure within the organization that supports knowledge sharing and provides the resources to make it happen. It won’t happen on its own. It must be dictated from the top and built right into how the business operates.

  If the organization’s climate is highly competitive, only junk will be shared. Employees will feel too insecure to share their best stuff because it would risk giving away their competitive advantage. Reward systems must be created to encourage sharing.

  In short, the business needs to build an entire process to promote, nurture, and distribute knowledge among employees; one that addresses the following four requirements:

  Gathering: Locate new knowledge worth distributing – without cluttering the system with unnecessary information. This will require an expert within the company to be responsible for locating and filtering the available information.

  Distribution: Efficiently distribute the necessary knowledge only to the people who can use it, thus avoiding information overload. This might involve a company newsletter, or “lunch and learns,” or possibly a curated library.

  Implementation: It’s not enough to collect and distribute information. You must convert the shared information into usable systems and strategies that result in business growth.