I’ve studied many of the most successful people in the history of our planet from titans of industry like John D. Rockefeller and Andrew Carnegie to modern day financial wizards like Warren Buffett, Charlie Munger, and Ray Dalio.
What I’ve discovered from studying such a wide array of incredibly successful individuals is there are some striking similarities between what enabled a 19th century oil baron to succeed and what makes modern day billionaires like Bill Gates, Jeff Bezos, and Elon Musk thrive.
In fact — there is a core principle that holds the secret to what these uber-achievers unlocked — and it’s something I call “high leverage thinking.”
But before we dig into the core ideas of high leverage thinking — and how you can harness them for yourself, starting right now, it’s important to understand the relationship between time and value creation.
The Secret of Leverage
There is a non-linear relationship between time and value creation. The amount of time you spend on something does not have a direct relationship to the amount of value you create.
This doesn’t just have to do with financial success — but it is extremely easy to demonstrate this principle using money.
For someone making $50,000 a year, if they work twice as a hard, maybe they can double their income to $100,000 a year. Once you start moving up the ladder, this logic really starts to break down. It wouldn’t be possible for the same person to work 10x as hard to make 10x as much ($500k a year), because that would require working 400 hours per week, and the week only has 168 hours!
The numbers get crazy when you look at billionaires and titans of industry. According to Wealth-X data from 2013, Warren Buffett made $12.7bn that year which breaks down to $37mm per day and $1.54mm per hour. Now that’s a serious hourly rate.
Is Warren Buffet working 254,000 times harder than someone making $50k a year?
In fact, Warren Buffett says himself that he spends 80% of his day reading! But we will come back to the tactics and strategies these ultra achievers use to be so productive in a minute.
So what gives? How is this possible? What’s the missing ingredient?
The missing piece of the puzzle is LEVERAGE. Warren Buffett, Bill Gates, and all of these titans of industry are masters of leverage. Achieving more by doing less and focusing on what’s important. Warren Buffet is making 254,000x more per hour because he is more high leverage.
The math behind this phenomenon is the 80/20 principle, which pervades huge amounts of our lives describing everything from the distribution of craters on the moon, to the size of files on your hard drive, to rabbit populations, pea pods, and the distribution of wealth of both nations and individuals.
Simply put, the 80/20 principle (which is a “Mental Model,” more on that in a minute) states that a few of your inputs create most of your outputs. A few high leverage activities create the vast majority of the results in your life, and this powerful economic principle, applied many times over, is the math that drives the mammoth differential between Warren Buffets return on time and yours or mine.
The Art of Decision-Making
So now we know that these titans of industry are vastly more high leverage than people who are making millions per year. But what are they doing?
After studying them deeply, interviewing the experts, reading dozens biographies, combing through speeches and articles, and picking apart activities and daily routines — I’ve uncovered the two core strategies these uber-achievers use to become as high leverage as possible.
The first strategy of high leverage thinking is improving your decision-making ability — this is what I call “The Art of Decision-Making.”
Here are five core components of The Art of Decision-Making:
- Use contemplative routines to determine what’s most important to focus on
- Harness the power of compounding by building on your knowledge and getting 1% smarter every day
- Focus on and study things that don’t change or change very slowly over time — master the principles and you can invent the tactics
- Follow the path of worldly wisdom and focus on acquiring multidisciplinary knowledge across academic disciplines like psychology, mathematics, and biology
- Build a toolkit of mental models so that you can better understand reality and achieve their goals.
Lets borrow some wisdom from Charles Duhigg the author of Smarter, Faster, Better and The Power of Habit.
In a recent podcast interview, Charles discussed how research shows that the most common rituals that highly successful people share are what he calls “contemplative routines.”
What actually seems to correlate with success is that the people who are most productive and most successful, they tend to have what researchers refer to as contemplative routines, as habits in their life that push them to think more deeply.
Journaling is a great example of this, because the act of journaling often times forces us to sit down and to try and make sense of how we spent our time recently.
What our goals actually ought to be as opposed to what we happen to just get obsessed with or fixated on right now, and how we should arrange our life so that those priorities, so that our energy and our activity is actually focused on our priorities rather than instantly responding to life’s many sort of busy work request. The basic insight here is that, particularly now, being busy and being productive are not synonymous.” — Charles Duhigg
The Power of Compounding
Improving your ability to think, understand reality, and make better decisions is one of the core principles of high leverage thinking. The more time and energy you invest in your decision-making ability, the more it continues to build and build on itself by harnessing the power of compounding(compounding is another example of a Mental Model, by the way).
Becoming a master at the Art of Decision-making cascades through everything you do. It’s not incremental growth in your knowledge, it’s exponential growth. Einstein described the power of compounding as the “eight wonder of the world” — and if you’ve ever crunched some numbers on a compound interest calculator you know how powerful compounding can be over time.
If you get 1% better at thinking — at understanding how the world works, how human behavior works, how economic systems function, and understanding your own brain — that 1% improvement impacts everything you do. You’re not just going to benefit at work, but when you deal with your spouse, or negotiate the purchase of a new car, or decide where to invest your savings. You’re entire life is essentially a long chain of decisions. Wouldn’t it make sense to invest in the ability to make better decisions and continuously improve that skillset?
These small incremental improvements in decision-making aren’t noticeable at first, but they eventually result in a huge transformation in how you think, act, and understand the world.
Here’s a quote from our dear friend Warren Buffett, when asked what the key to success was he pointed to a stack of books and said:
“Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
Study Things That Never Change Over Time
A key piece of building a compounding machine of knowledge — that over time will let you vault over almost everyone on the planet in terms of sheer brain power — is focusing on knowledge that doesn’t change or changes very slowly over time.
Many people focus their time and energy on learning rapidly changing tactics, the minutiae, highly specific actions and pieces of advice without a broader context. As Sun Tzu once said “tactics without strategy is the noise before defeat” and Ralph Waldo Emerson said:
“As to methods, there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble.”
I’m here to teach you how to be one of the people who masters the principles that govern reality — so that you can wield them to achieve whatever goals you want to achieve.
People gobble up the latest article “10 Things You Can Do To Improve Your Email Opt-In Rate” but the problem with studying knowledge like that is that it changes — it doesn’t give you something to build up and build upon over time — in 18 months all of the advice in that article will be useless. If you spent a year in 2004 reading every book on high performance banner ads — none of that knowledge would be relevant today.
But if you flip that, if you study the strategy — spend your time mastering the core principles that underpin psychology and human behavior, reading things like the book Influence by Robert Cialdini — you can invent marketing tactics on the fly — because you understand the bigger picture. And that knowledge changes very slowly over time — it’s a core foundation that you can build upon and grow from.
This also means that the best kind of knowledge to focus on and spend your time investing in is not ephemeral junk like facebook, twitter, and buzzfeed, but the core pillars of human knowledge and the major academic disciplines, which brings us to the principle of Worldly Wisdom.
The next key component of The Art of Decision-making is cultivating what Charlie Munger (the billionaire business partner of Warren Buffett) calledWorldy Wisdom.
Here’s a great description of the concept of worldly wisdom from Robert Griffin’s book “Charlie Munger: The Complete Investor:”
Munger has adopted an approach to business and life that he refers to as worldly wisdom. Munger believes that by using a range of different models from many different disciplines — psychology, history, mathematics, physics, philosophy, biology, and so on — a person can use thecombined output of the synthesis to produce something that has more value than the sum of its parts. Robert Hagstrom wrote a wonderful book on worldly wisdom entitled Investing: The Last Liberal Art, in which he states that “each discipline entwines with, and in the process strengthens, every other. From each discipline the thoughtful person draws significant mental models, the key ideas that combine to produce a cohesive understanding. Those who cultivate this broad view are well on their way to achieving worldly wisdom.”
Being multidisciplinary means collecting knowledge from lots of different disciplines and areas of life and building an approach to understanding the world that integrates all that knowledge into a cohesive framework.
In order to get what you want you have to understand how to get there, and in order to do that, you have to understand how things work — things like human behavior, economic systems, money, biology, and mathematics. Josh Kaufman explains this beautifully in The Personal MBA:
“Every business fundamentally relies on two factors People and Systems…To understand how businesses work, you must have a firm understanding of how people tend to think and behave — how humans make decisions, act on those decisions, and communicate with others. Recent advances in psychology are revealing why people do the things they do, as well as how to improve our own behavior and work more effectively with others.
Systems, on the other hand, are the invisible structures that hold every business together. At the core, every business is a collection of processes that can be reliably repeated to produce a particular result. By understanding the essentials of how complex systems work, it’s possible to find ways to improve existing systems, whether you’re dealing with a marketing campaign or an automotive assembly line.”
The problem is that too many people have a very narrow focus — they master one piece of the puzzle, say marketing or finance, and think that has all the answers. But reality is messy and complex and interwoven. Most big events in our lives aren’t caused by one simple explanation; they are the result of an interplay of factors.
A multidisciplinary approach intertwines and strengthens itself by enabling you to pull from different disciplines of knowledge and bring the exact tools necessary to understand and solve tough challenges and to achieve complicated and difficult goals. As Peter Bevelin writes in Seeking Wisdom:
“Since no single discipline has all the answers we need to understand and use the big ideas from all the important disciplines: Mathematics, physics, chemistry, engineering, biology, psychology, and rank and use them in order of reliability.”
A Framework of Mental Models
Now its time to go deeper into Mental Models, which we briefly touched on earlier. A mental model is simply a concept, an idea, a tidbit of wisdom that in some way explains how the world works. Mental models are one of the cornerstones of high leverage thinking. In fact, Charlie Munger puts it pretty bluntly:
“Developing the habit of mastering the multiple models which underlie reality is the best thing you can do.”
When a billionaire tells me something is “the best thing I can do” — I listen.And I’ve spent a tremendous amount of time studying billionaires, people like Charlie Munger, and mental models so that you don’t have to.
A few examples of mental models would be concepts like the 80/20 principle and compounding, both of which we discussed earlier, as well as concepts like expected value and base rates from mathematics, notions such as confirmation bias, anchoring, and social proof from psychology, the prisoner’s dilemma from game theory, or the concept of natural selection from biology.
While this may seem a bit overwhelming, the good news is that you don’t have to become an expert in physics and chemistry just to become a high leverage thinker. The whole idea is to master the big ideas . Take the major principles from a 101 textbook and combine them into a framework of mental models that offers a rich and deep tool kit to look at, understand, and manipulate reality to your ends.
The Key Ideas
Remember the core ideas behind the Art of Decision-making:
(1) Use contemplative routines to determine what's most important to focus on
(2) Harness the power of compounding by building on your knowledge and getting 1% smarter every day
(3) Focus on and study things that don’t change or change very slowly over time — master the principles and you can invent the tactics
(4) Follow the path of worldly wisdom and focus on acquiring multidisciplinary knowledge across academic disciplines like psychology, mathematics, and biology
(5) Build a toolkit of mental models so that you can better understand reality and achieve your goals.
When you combine all of these factors, you are putting your brain on a high leverage rocket ship — and with the power of compounding you will start leaving other people in the dust.
But making great decisions is only half the battle. What can the titans of industry teach us about the other key element of being high leverage?
Here’s What Rockefeller & Carnegie Do
We just went deep on The Art of Decision-making — now let’s look at the other big strategy used by high leverage thinkers like Bill Gates, John D. Rockefeller, and Andrew Carnegie — hiring people to replace yourself.
Hiring people and constantly replacing yourself is one of the single greatest ways to continuously gain higher and higher leverage on your time. Too often entrepreneurs get caught up in the trap of having to (or feeling like they have to) do it all themselves. This is a dangerous road to walk — and while it can be useful in the early days — it quickly becomes a detriment and ends up bottlenecking your growth.
You often see the most high leverage people doing things that an average person would think is “wasting money” — like hiring someone to do their grocery shopping, paying for lawn care services, having a maid, hiring a handyman to do the work around your house, or paying for a virtual assistant.But it is exactly because a high leverage persons time has become so valuable — that they cannot possibly fathom investing it in an activity that they could outsource for 1/10th or less of their own hourly rate.
This applies in your business too. Anything that anyone else can do 80% as good as you can — in order to leverage your time as effectively as possible you have an obligation to replace yourself as quickly as you can.
I want to share two of my favorite quotes on this topic from some serious titans of industry.
The first is from the book Andrew Carnegie by David Nasaw:
“When A.B. Farquhar, a Pennsylvania businessman, boasted that he was in his office every morning ‘by seven in the morning’ and was the last one to leave in the evening, Carnegie laughed at him. ‘You must be a lazy man if it takes you ten hours to do a day’s work. . . . What I do . . . is to get good men, and I never give them orders. My directions seldom go beyond suggestions. Here in the morning I get reports from them. Within an hour I have disposed of everything, sent out all of my suggestions, the day’s work is done, and I am ready to go out and enjoy myself.’”
The playbook for success has been out there for a long time — over a hundred years ago some of the most successful individuals in history where sharing their exact strategies for how to leverage your time as effectively as possible. But, Andrew Carnegie was only the second wealthiest person in modern history. Let’s hear from the wealthiest.
The next quote is from John D. Rockefeller (from the book Titan by Ron Chernow) when he was speaking to a young recruit at the Standard Oil offices:
“Has anyone given you the law of these offices? No? It is this: nobody does anything if he can get anybody else to do it . . . As soon as you can, get someone whom you can rely on, train them in the work, sit down, cock up your heels,and think out some way for the Standard Oil to make some money.”
That is high leverage thinking in a nutshell. As soon as you can — find someone you can train, replace yourself, and spend your time thinking, reading, learning, and focusing on the big picture — as Michael Gerber would call it — working on your business not in your business — that is the essence of being becoming high leverage.
As Carnegie notes above — you want to hire good people to replace yourself, and that’s not always easy. Going deep on the hiring practices and strategies is well beyond the scope of this post, but I did want to offer a great resources for that journey. The book “Who: The A Method for Hiring” by Geoff Smart and Randy Street is a great starting point for learning how to both source and evaluate talent when hiring people.
Let Go (Of The Need To Do Everything)
One of the first big steps to replacing yourself is letting go of the need to do everything. Needing to do everything is the same thing as knowingly becoming a bottleneck to your own success. It’s rooted in perfectionism and does nothing but hold you back.
Sadly, this is actually more of a curse for people who are very talented — because they know they can do a great job at every piece of the puzzle — they often can’t tolerate when someone doesn’t do it just as they would have liked. The end result, however, is that these people end up frazzled, trying to do 3 people’s jobs at once, and mired in busy work and minutia that they have to do “just right” — missing the bigger picture and destroying their ability to achieve leverage on their time and output.
The sooner you can let go of the need to be in the middle of everything, andrealize that it’s OK if someone else does it a bit differently — the faster you can start leveraging your time. As Tim Ferriss notes “what you do is infinitely more important than how you do it.”
A good rule of thumb here is that if someone can perform as task 80% as well as you can, go ahead and give it to them and move it off your plate. Peter Drucker makes this point abundantly clear in The Effective Executive:
“[The effective executive’s] first look at the time record makes it abundantly clear that there just is not time enough to do the things the executive himself considers important, himself wants to do, and is himself committed to doing. The only way he can get to the important things is by pushing on others anything that can be done by them at all.”
Design A System — And Let Your Team Execute It
It always amazes me to see the same themes and ideas echoed across centuries. Ray Dalio is describing the same strategy that John D. Rockefeller espouses — designing and managing a machine that lets you get what you want. A key part of that strategy is constantly replacing yourself in any area where you are weak.
Ray Dalio is a billionaire who was named by Time as one of the 100 most influential people in the world and named one of the 100 wealthiest by Forbes. Ray is known for his unrelenting pursuit of truth — and provides great insight, in his book Principles, into why you should constantly focus on understanding your own strengths and weaknesses and replace yourself with someone as quickly as possible:
“Let’s imagine that your goal is to have a winning basketball team. Wouldn’t it be silly to put yourself in a position that you don’t play well? If you did, you wouldn’t get what you want. Whatever your goals are, achieving them works the same way.
If you see that you are not capable of doing something, it is only sensible for you to have someone else do it. In other words, you should look down at you and all the other resources at your disposal and create a “machine” to achieve your goals, remembering that you don’t necessarily need to do anything other than to design and manage the machine to get what you want. If you find that you can’t do something well, fire yourself and get a good replacement!
You shouldn’t be upset that you found out that you are bad at that — you should be happy because you have improved your chances of getting what you want. If you are disappointed because you can’t be the best person to do everything, you are terribly naïve because nobody can do everything well. The biggest mistake most people make is to not see themselves and others objectively.”
You don’t have to be the person working any given part of the machine — but you must be the one designing it and managing it — guiding it towards the goals that you ultimately want to achieve.
Once you have a system and a trusted team — delegate and give them a large dose of responsibility. In the book The Outsiders by William Thorndike the author examines eight companies that outperformed the SP500 by an average factor of 20x — and uncovers the strategies their management team used in order to achieve such incredible results. One of the core strategies used by these unconventional CEOs was described as “delegation to the point of anarchy.”
Constantly Replace Yourself
I consider myself a pretty lazy person — and that’s why I’ve always loved the Bill Gates quote:
“I always choose a lazy person to do a difficult job, because he will find an easy way to do it.”
In fact — I’ve been able to wield my laziness as a weapon to constantly and relentlessly replace myself in anything I am doing that is not my absolute zone of strength. Whenever a task lands on my desk from one source or another — the first thing I ask myself is how can I delegate this, and if I can’t — the next question I answer is how can I build a system so that it’s possible to delegate this in the future.
It is only by continuously asking “it is really necessary that I do this” that you can start to free yourself from the self imposed constraints of perfectionism and move forward with building a system and a team to execute it — freeing your time to focus on bigger and more important issues.
Focus On Your Strengths
By building a team and replacing yourself — you can focus on your true areas of strength, and spend the most possible amount of time living and working in your strengths. By doing this you achieve a double compounding effect — more if your time is spent in your strengths and you are getting better at those strengths (by investing that time in the Art of Decision-making). Once you truly start to move down this path, you begin to achieve more and more leverage.
It’s been said many times, but I think Peter Drucker sums it up wonderfully in the Effective Executive when he says:
“Making strengths productive is therefore much more than an essential of effectiveness. It is a moral imperative, a responsibility of authority and position. To focus on weakness is not only foolish; it is irresponsible. A superior owes it to his organization to make the strength of every one of his subordinates as productive as it can be.
But even more does he owe it to the human beings over whom he exercises authority to help them get the most out of whatever strength they may have. Organization must serve the individual to achieve through his strengths and regardless of his limitations and weaknesses.”
Focusing on your strengths not only lets you be more high leverage — its literally a moral imperative to only do what you’re good at, and surround yourself with other people who’s strengths fill in your weaknesses.
Becoming A High Leverage Thinker
So there you have it — the essence of becoming incredibly high leverage. These are the major tools and strategies used by history’s most successful individuals. The common themes between a 19th century oil barron and a modern day hedge fund master of the universe are no accident — these principles are the timeless strategies that top performers use to become exponentially more effective than an average person.
Just like compound interest, these changes accrue very slowly, almost imperceptibly, at first, but before you know it — you will look back and be shocked at the incredible leaps and bounds you’ve made and find it hard to pinpoint the exact moment of departure, when you become a High Leverage Thinker too.