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Leverage Is Everything When It Comes To A Successful Business Model

By: Steve Johnson

2/1/2008 - 32 Comments

One of the primary advantages of a large corporation over a startup is leverage. Leverage is the ability to borrow or put to work something you have to create a competitive advantage.

Creating a competitive advantage is the primary means to profit while blocking your competition by doing something that they cannot do. Leverage is everything. All corporations make use of leverage to sustain their profits. Leverage comes from many things including; knowledge, connections, assets, employees, capital, buildings and capacity to produce.

When starting a new business, it is essential to find some leverage. Most of the time, it is nearly impossible to try to directly compete in an existing market – because the competing corporations have far too much leverage over a startup. Therefore, new businesses attack new markets. New markets have few competitors but they also have few customers, which leads to a business model heavily focused on direct customer relationship building. The entire staff of a startup is usually focused on direct sales for the first few years, focusing on converting non-consumers into new customers.

Startup Leverage

A startup needs to find some leverage as quickly as possible and work very hard to increase the influence of their leverage. Experts bring leverage with them. Building the startup team is very important because you need to bring together experts who have leverage from their existing knowledge or connections or access to assets. When a startup looks to get funding from a venture capital investment firm, the VC is primarily interested in the makeup of the team because they know from experience that without a team of experts, the startup will not have enough leverage to survive.

Starting with Nothing

What if you wanted to start a business in your home or garage? You don’t have a team of experts. You don’t have a lot of money. And you don’t have any customers.

Here’s how to do it.  You yourself need to become an expert, make connections with suppliers or venders to help create your product and find a way to fund your product by building only a few at a time, and then  get on the phone or Internet and sell them.

Trial and Error

A lot of entrepreneurs find leverage by trial and error. They just start trying to sell something and eventually fail.  In the process, they learn about the competitors, customers, suppliers, distribution channels and the delivery process. After several failed businesses, they become experts. They now know how the market works and how to create their own leverage. This is sometimes a long a painful process, which is why it usually take an unusual amount of will, vision and determination.

Some find a niche market that they can exploit and grow into. Others find the competitors are too strong for them and they need to move on to other markets. Others find a unique idea or process that gives them an edge (leverage) against the existing competitors, which they can couple with hard work and focus to build their business around.

If you are going to use ‘trial and error’, be sure not to invest all your money – because you are likely to fail several times. One of the biggest mistakes when starting a business is to put it all on the line. In his book, “The Innovator's Solution”, page 221, Clayton Christensen says it this way;

”Entrepreneurs rarely get their strategies exactly right the first time. The successful ones make it because they have money left over to try again after they learn that their initial strategy was flawed, whereas the failed ones typically have spent their resources implementing a deliberate strategy before its viability could be known.”

Focus

Many entrepreneurs argue that focus is the number one thing to concentrate on when starting a new business. Robert Kiyosaki, author of the “Rich Dad, Poor Dad” says it this way in the book, “Why We Want You To Be Rich”, page 111, Robert Kiyosaki says;

“Personally, I do not diversify, at least not in the way that financial planners recommend. I do not buy a lot of different assets. I would rather focus. In fact, the way I get ahead is by focusing, not diversifying. One of the better definitions I have heard for the word 'focus' is using the word as an acronym, F=Follow, O=One, C=Course, U=Until, S=Successful."

The reason focus is so powerful is because it builds knowledge and knowledge builds confidence and confidence leads to relationships and sales. Although this is all true, sometimes focus doesn’t get you anywhere.  As in the trial and error example above, sometimes you learn that you have no way to leverage anything in the market that you are pursuing – and therefore need to try another market.

Once you find even the smallest leverage (which Robert has in the Real Estate industry), then stop everything else and focus on growing your leverage to the maximum potential that you can.

Research

Another way entrepreneurs find leverage is by studying the market they are interested in. They read the top 20 books and magazines in the industry. Research the competitors, buy their products, learn about their customer support – find out why their customers are happy with them.

Interview the industry leaders and talk to them about the changes in the industry. Attend the industry trade shows. Apply for a job at the leading corporations, which will give you the chance to interview with key managers, just to learn about what products they are investing in.

Turning a Fad into a Trend

A startup needs a new angle. Turning a fad into a trend can be just the angle you need. The idea is to look for major changed in the marketplace, which existing corporations are not able to quickly react to, because they are dug in with both feet – over committed to fighting competitors and focused on product and process improvements. They cannot react very quickly to changes in the market.  A startup can leverage their ability to quickly create products targeting new fads. If you can market a new fad quickly enough, you can turn it into a trend that may become part of the culture and therefore positioning yourself as a major supplier.

Whether you’re a large corporation or a one-person business, you need leverage. I hope this article gives you a few new ideas of how to find the leverage you need to succeed. 

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