You know the good feeling you get walking out of work or class on Friday afternoon.
No one should have to experience that.
Five days of working 8 hrs/day on other people’s dreams.
Friday evening signals the start of your two respite from the drudgery.
Only to have to start it over again on Monday.
How did you end up here?
More importantly, how do you get out?
What was I missing?
I did the the same thing. Most people do without thinking twice.
I thought I was on track.
• Engineering degree. Check
• 6-figure job. Check.
• Investing in the market. Check
One day, I did the math to figure out when I would retire.
Factoring in house, cars, vacations, raising kids, saving for college, etc.
And the answer was … age 59. I was shocked.
What was I missing?
Over the next several years, I read over 100 books on business, investing, economics, and personal development.
Each of them came at the problem from a different angle: leadership, time management, networking, start-ups, technology, innovation, self-employment, sales, marketing, real estate, stocks, bonds, etc.
Enough. I finally sat down to distill the core idea across all of them.
This is what I found.
Leverage Loops
The common, often unstated, idea running through the books was using what you currently control in your life to gain control over other things in your life.
As I talk about in my letter “Wealth is not measured in dollars”, your main goal should be gaining control of your time.
Control of your time is what allows you focus on your health, wealth and relationships. That is a life of fulfillment.
The fact is it’s not possible to gain control of your time without leverage.
Leverage is the amount time you free up by spending one hour doing something.
For example, if you free up 30 hours over the course of your life by spending 1 hour doing something, then the leverage of that activity is 30x.
Based on this insight, I developed what I call the “Leverage Loops” diagram.
Leverage Loops are a simple framework for navigating the world of wealth building.
A Leverage Loops diagram shows you how to leverage the time you do control to gain control over other things that provide you more leverage.
Eventually you loop back to gain more control over more of your time. Then, repeat the loop.
It turns out there are different loops you can iterate through that provide different levels of leverage.
In this guide, I talk about the most common:
• The Beggar’s Loop
• The Employee’s Loop
• The Entrepreneur’s Loop
• The Bootstrapper’s Loop
• The Passive Investor’s Loop
In the future, I’ll dive into more detail on each of these loops. For now, I just want to give you an overview.
Let’s get started.
Nodes in the Leverage Loops diagram
Here’s a quick run-down of the nodes in the Leverage Loops diagram below:
• Time: This is time you control. Time spent at your job or in class doesn’t count. That time is controlled by your boss or teachers.
• Money: Money is used to free up your time by allowing you to, for example: shop instead of hunt, drive instead of walk; call instead of visit; eat out instead of cook; be well instead of lay sick.
• Skills/Tools: Skills and the tools you use provide leverage to your time by making your actions more valuable to others.
• Products/Services: Products and Services provide leverage to your skills by capturing your past building efforts as solutions that persist.
• Customers/Clients: Customers and Clients provide leverage to your skills by capturing your past selling efforts as relationships that persist.
• Securities: Securities are financial instruments that represent either an ownership position or a creditor relationship. They provide leverage by capturing the products/services and customers/clients of other companies (without you having to do it). Securities are unique in that they provide leverage to your money directly (i.e. none of your time is needed).
Moving from one node in the Leverage Loops diagram to another is thought of “using control over the first node to gain the next node”.
For example, moving from Time to Skills/Tools is “Using control over your time to gain skills and tools”.
Now, let’s talk about why Leverage Loops diagrams are organized like they are.
How Leverage Loops are laid out
The Time node is at the top because everything starts with your time.
The loop you make from Time to other nodes and back to Time determines the amount of leverage you have.
Be careful. Not all loops are equal.
The Money node is in the center because it acts as a unit of exchange between all the other nodes.
A shown below, Leverage Loops diagrams can be divided into Resources (unfilled circles) and Assets (filled circles).
Resources are the things you spend. They have no leverage in and of themselves.
You have only two resources: Time and Money.
As you’ll see in a bit, money is acquired only by first spending your time. So, time is your only true resource.
Assets are the things you own that generate money for you. As such, they have leverage.
There are four types of assets: Skills/Tools, Products/Services, Customers/Clients, and Securities.
As shown below, the Leverage Loops diagram can also be divided with a vertical line into Build on the left and Sell on the right.
This follows from the fact that there are 3 foundational skills in life:
• Leading
• Building
• Selling
Build-side skills in the digital economy include analytics, coding, graphic design, and website development.
Products/Services include apps, lead magnets, coaching, and courses.
Sell-side skills in the digital economy include branding, copywriting, cultivating an audience, and negotiating.
Customers/Clients include your social media audiences, email lists, and cohorts.
Money as a Unit of Exchange
As I mentioned earlier, Money is in the center because it acts as a unit of exchange between all the other nodes.
In a moment, we’ll look at the most common loops. To keep the diagrams simple, I don’t include the arrows between the Money node and each of the other nodes.
Just keep in mind that you can, as shown below, use the money you control to get the other resource or assets.
But remember, Time is not an asset.
So, if you use your money to buy your personal home, you are getting Time (i.e. faster access to water, food, light, heat, etc. than if you lived outside.)
On the other hand, if you use your money to buy a rental house, you are getting a Product (i.e. living space) that you can offer to a Customer (i.e. a renter).
Now that we understand the layout of the Leverage Loops diagram, let’s look at some example loops.
The Beggar’s Loop
The diagram below shows the simplest loop.
The Beggar’s Loop is the path from Time to Money and back to Time again.
Individuals with no skills or tools follow this path by using their time directly to gain money. In other words, they spend their day begging for money.
The amount of money they get for their time is small. It might be enough to buy them their next meal, but that’s about it.
When they return to the Time node, they control no more of their time than when they started.
This is strictly an exchange of one resource for another.
In other words, there is no leverage along the Beggar’s Loop.
The Employee’s Loop
The next two diagrams show the low leverage paths traversed by 90% of people.
People on the Employee’s Loop start by using control over their time to gain skills and tools (i.e. go to school).
They use control over these skills and tools to gain money (i.e. get a good job).
They then use the money they receive (i.e salary) to gain control over a small amount of their time (i.e. nights, weekends, and a few weeks of vacation each year).
The loop shown on the Build side (left side) of the diagram below is the path of employees who use their skills to build a product or provide a service owned by the company they work for.
Build-side employees are construction workers, nurses, furniture makers, software engineers, etc.
The loop shown on the Sell side (right side) of the diagram below is the path of employees who use their skills to sell to a Customer or Client of the company they work for.
Sell-side employees are business developers, sales people, telemarketers, advertising reps, fundraisers, etc.
Although an improvement from the Beggar’s Loop, the Employee’s Loop is still a low leverage path.
The build-side employee loop is the one predominantly taught in traditional schools.
It’s no wonder that most people end up circling the employee loop their entire lives.
A 9-5 job is like a pawn shop for your time.
Hard truth: It is difficult, as an employee, to gain enough control over your time to lead a fulfilling life.
But, you are different. By reading this guide, you are seeing the big picture and understanding what other leverage loops exist.
The Entrepreneur’s Loop
To make use of more leverage, you need to expand your path into the high leverage nodes that occupy the lower half of the diagram.
As shown in the diagram below, entrepreneurs also use their time to gain skills and tools.
But, rather than exchange their skills and tools with a company for money, entrepreneurs use them to create their own Products/Services and establish their own Customers/Clients.
The money gained from selling Products/Services to Customers/Clients is then used to free up more time.
This free time may result from quitting your 9-5 job or from hiring virtual assistants or other employees to take over delegated tasks.
Just expanding the path you take into the higher leverage nodes, however, is not enough.
In the diagram above, you see that entrepreneurs operate on both the Build side and Sell side of the diagram.
In fact, the main reason employees who venture out on their own fail is that they operate on only one side of the diagram – the one they were trained for as employees.
They have a great product/service, but no one to sell it to. Or, they have prospective Customers/Clients, but nothing to sell.
In the physical economy, entrepreneurs need to lead a team of employees to traverse both the build side and sell side of the diagram at the same time.
With the tools available in digital economy, however, an individual can create a digital product and reach prospective customers all on their own.
These individuals are known as solopreneurs.
The Bootstrapper’s Loop
Bootstrapping refers to starting and growing a business without seeking external investment such as venture capital or significant loans.
Instead, the company is funded by the founders’ own resources and the business’ revenue.
Once the company is growing and profitable, the founder can take the company public and convert his/her ownership into securities in the company as shown below.
This is a super leverage path. But, given today’s technology, it still requires large teams of talented employees to pull off.
For this reason, I won’t dwell much on this loop here.
But, you should be aware of it.
At some point, you’ll find that you have freed up all the time you’d like. Maybe you still want to work 2-4 hours per day because you enjoy the challenge.
As money continues to be generated by your product or service, you decide to also travel the Passive Investor’s Loop (see diagram below)
Passive investor’s use their money to gain securities and then use the securities to gain more money (e.g. appreciated value, dividends).
The important thing to take away for this loop is that passive investors gain money without needing to spend much of their time.
Therefore, this path provides “hyper leverage”.
While the Passive Investor’s Loop is a hyper leverage one, it is also a relatively low return on investment (ROI) path compared to the Entrepreneur’s Loop.
A common strategy that employees use is to invest the small amount of money they control into Securities instead of into freeing up Time.
This is a fine if you want to retire at 65 years old.
But, the ROI from Securities on the small amount of money from a salary is generally not sufficient to retire early.
Focus first on the Entrepreneur’s Loop
When we're young, we have more time than money. When we're old, we have more money than time. Those who solve this paradox are rightly to be admired.
At yolopreneurs.com, we teach how to use the Entrepreneur’s Loop to build and sell products as a solopreneur.
Initially, when your main resource is time, your focus is on developing and stacking skills that can be used to gain digital products.
These digital products can easily be replicated to generate on-going income with minimal effort.
This loop is the path to true financial freedom.
Each time around the Entrepreneur’s Loop you gain more skills, create more products, generate more money, and free up more time.
Once you have freed up all the time you desire, you transition to the Passive Investor’s Loop.
Here’s a recap of the steps on the Entrepreneur’s Loop:
- Use time to get skills: Spend your time learning valuable skills such as coding, graphic design, or digital marketing, through online courses or tutorials.
- Use skills to get products and customers: Cultivate audiences on social media and with a website. Create digital products like e-books, online courses, or software tools that solve specific problems and meet your audience’s needs.
- Use products and customers to get money: Create offers that persuade members of your audience to buy your product.
- Use money to get time: When your product income is sufficient, free up time by quitting your job. If you are already self-employed, use the money to automate tasks or outsource them to an assistance.
- Repeat steps 1-4: Use the additional time under your control to focus on scaling your business and repeating the cycle for further growth.
Join Us
I hope that you found value in this guide. We’ve just scratched the surface on the insights that the Leverage Loops diagram provides.
You can break free from the path that traditional schools and corporations have funneled you into. I encourage you to start using the Leverage Loops framework to gain more control over time in your life.
To learn more about Leverage Loops and other strategies for starting and growing your own one-person business, make sure to also subscribe to our newsletter.
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