“Give me a lever and a place to stand, i will move the earth” – Archimedes.
“He who stands on the giants shoulders, sees farther than the giant” – Poissant.
Before i proceed, i want to welcome you to year 2010. I thank God you made it across. I believe you have set some business and personal goals for the year. If you have, then this article is going to be of importance to you. Let’s go:
Leverage as a word might sound absurd to you but underneath it lies tremendous power. Now what is leverage? Please forget about the dictionary meaning of the word, let me bring it to you in a layman’s language. To me, leverage is simply the ability to do much with less and this is where the power lies. For better understanding, imagine buying a car worth $100,000 with just $20,000 or less. That is leverage in its simplest term; buying more with less.
My main purpose of writing this article is to show you in detail how to use the power of leverage to build your business. Since leverage is doing more with less, this article is all about building your business with less. I want to bring to you three kinds of leverage you can exploit to build your business.
1) Intellectual Leverage: This is the first kind of leverage you can make use of. To me, it is the most important and most powerful form of leverage. To build your business using this type of leverage, there are two ways you can go about it.
The first approach can be taken when you have a solid business idea, invention or any marketable intellectual asset. Let me give you an illustration. Suppose you run a small company and you have just invented a widget with great market potential but you lack the financial muscle to mass produce it. You can take your invention to a bigger company to mass produce it on your behalf.
Since you have nothing but an idea in the form of an invention, a deal can be struck with manufacturing company to mass produce and market on your behalf and split profit with you while you still retain the right to your invention. If the deal is to last for 3 years, i am sure you can make enough money to take over the production and marketing of your invention. In this case, you can be said to have smartly applied intellectual leverage to build your business. It is as simple as ABC.
The second approach is to leverage the intellectual strength of other people. As an entrepreneur, you should keep a keen eye for talented and skillful people to attract to your company. Bringing a team of intellectuals on your team will help boost the confidence investors have on your business. Intellectuals can also help you build your business by acting as advisors. Intellectuals can also be professionals such as accountants, legal advisors, tax strategists and so on. I hope you know that most employees of Microsoft Corporation are young computer whiz kids. They prefer to call themselves micro kids. If Microsoft can leverage the intellectual capabilities of these youngsters to strengthen their business, why can’t you?
2) Financial Leverage: This is another kind of leverage you can use to build your business. Let me share with you real life illustrations of how financial leverage works. Few years ago, i happen to stumble upon an information that there was an impending food crisis. I carried out research and found out that the information was true. I did a preliminary market research, prepared a business plan and presented the plan to my dad. Together, we approached a bank with the plan, which was to import rice in bulk. The deal ended on a good note, we brought 40% of the cash while the bank brought the remaining 60%. It is just like importing goods worth $1,000,000 with only $400,000. As expected, we made our profit and gave the bank their interest, everybody wins. That’s the power of financial leverage.
Few years ago, one of the richest black men by name Alhaji Aliko Dangote was on a project to build the largest cement factory in Africa. The total cost of the project was one billion dollars. His company brought in $320,000,000 and a consortium of bank brought the rest. Today, this company by name Obajana Cement PLC is already in business. Thanks to the power of leverage.
Another way to apply financial leverage is by buying more with less from your suppliers. You can call it obtaining credit facility but i prefer to call it leverage. Just like the case above, you can pay $100,000 cash and get goods worth $300,000 on credit from your suppliers if you are credit worthy.
3) Brand Leverage: This is a very powerful form of leverage that can be applied in two ways. Before brand leverage can be used to build your business, you must fulfill any one of these conditions. It’s either you have an already existing business and you want to expand or you want to start a business and you intend using brand leverage to build your business. If any of these applies to you, then read on.
If you are a business owner and your aim is to expand using brand leverage, the prerequisite is that your business must be a brand that others crave for or you must have a unique product. But if you intend starting your own business and you don’t want to go through the stress of building a business from scratch, you can apply brand leverage in any of the two forms listed below:
The first way to apply brand leverage is through Franchising. You can franchise your business to other interested entrepreneurs for a fee and royalty. I hope you know the Mc Donald’s story? It is a story of how Ray Kroc built Mc Donald’s, a multi billion dollar business simply by applying the franchise tactic to his company. That is the power of brand leverage.
The second is licensing. Licensing is simply giving another company the right to use your trade marks in return for royalties. One of the world’s richest men, Bill W. Gates founder of Microsoft Corporation became a multi billionaire by licensing his software “MS DOS” to hardware giant IBM. A point to note is this; he didn’t invent MS DOS. He simply bought it from some programmers, licensed it to IBM and became the richest man in the world. Once again, that’s the power of leverage.
Joint Venture is also another form of brand leverage that you can use to build your business.
Personality Leverage: This is an under utilized kind of leverage because most people have sold their integrity for peanuts. You can’t apply this type of leverage except you are a person of integrity. You must also have a proven track record of success and credibility. No more, no less. Alhaji Aliko Dangote, founder of Obajana Cement PLC, the largest cement factory in Africa was able to get the banks to finance his company with almost 70% of a billion dollars. He was able to achieve this because of his credibility. He has a proven track record of success in his business of buying and reviving moribund (dead) companies.
You can build your business to any level if you are prepared to develop your personality.
This is all i can share for now. Till i come your way again, think entrepreneurship, think leverage and i will see you at the top. Good luck!!!
