E3: Time can either be your friend or an enemy depending on how you utilize it. So how can you tell if time is working for you or against you?
Let's discuss the power of compounding and how important it is to have time on your side.
Four Types of Leverage (2:21)
Labor, Capital, Code, Media. Labor and Capital requires permission. Code and Media are permission less.
Time as Amplifier of Leverage (3:33)
Time is the amplifier of the leverage you are currently deploying.
How to Start a Company Using Leverage (4:15)
You raise funding, which is essentially other people's money. That's capital leverage. Now, you go out and recruit the smartest people to help build a team around you. That's labor leverage. Now, your team writes code to solve a particular problem for your customers. This enables your company to serve many customers all at once. Finally, you document your journey and share it with your target audience in a blog, YouTube channel, a podcast, wherever your potential audience may hang out. This is Media leverage.
How to Start a Company Without Leverage (5:03)
You have an idea for a business. You bootstrap it using your own money. You don't hire anybody else. You don't share what you're doing and keep everything to yourself. As time passes, what's going to happen?
Using Leverage as a Bootstrapped Company (5:35)
You can hire offshore virtual assistants for your back office operations. You can get a loan from the SBA to help you expand your business. You can look for different types of software to help you streamline your operations. You can start documenting your business journey and sharing it with your audience.
Time as Your Enemy (6:21)
It's possible to have time work against you. Time is the amplifier of leverage. If you have a negative flywheel, you need to identify it immediately and take steps to get out of it.
Power of Compounding (7:45)
If you were given a single dollar bill today, and that dollar doubled each month, you would have a little over $4,000 after the 1st year. After your 2nd year, you would have close to $17 million dollars.
Warren Buffett's Net Worth (8:34)
99.7% of Buffett's wealth came after his 52nd birthday.
World-class entrepreneurs have one thing in common: they master the art of decision-making. Influential thinkers like Charlie Munger, Jeff Bezos, and Elon Musk all use mental models and frameworks to simplify complex problems. Join host Yong-Soo Chung as we dive into powerful frameworks covering entrepreneurship, self-improvement, and wealth-building that will unlock hidden growth levers in your business one week at a time. Listen & follow!
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What's going on everybody? Welcome to another episode of First Class Founders, the show where we dive into concepts, frameworks, and mental models to help build your problem-solving toolkit. Each episode is short and sweet, jam-packed with value. My name is Yong-Soo and I'm the founder of Urban EDC and GrowthJet.
In the last episode, I went over the concept of the 20-mile march and how it has transformed our company adding both accountability and predictability of revenue without adding any management overhead. This was a good one, so if you miss it, be sure to check it out. All right. Today we're gonna discuss the power of compounding and how important it is to have time on your side.
Time can either be your friend or an enemy depending on how you utilize it. So how can you tell if time is working for you or against you? Let's get right into it.
Okay. Let's talk about the magic of compounding. One of my favorite wonders of the world when it comes to time, everybody is on the same playing field. Everybody gets 24 hours in a day. That's it. In a way, it's the most equitable resource on the planet. Yet it seems like there are some people that are able to squeeze a lot more out of the same unit of time than others.
How is this possible? Imagine for a second you go to your 10-year high school reunion. 10 years have passed since you graduated. You look around and see some buddies you hadn't seen in years. A few of them you consider having incredibly successful careers, whatever that may mean for you, whether that's becoming a successful politician or a New York Times bestselling author, or a founder who just closed a new round of funding.
Then you walk around and notice a few other groups of friends. These guys seem like they hadn't changed since the day they graduated high school. They certainly look older with more facial hair and more wrinkles, but nothing about them seems to have changed after all these years. What is the difference between these two groups of friends?
Really the only difference is how they've managed the time between graduation and now. The successful group of friends seems to have honed in on a particular area of interest and compounded it over the years into something much bigger. The second group may have dabbled in different types of industries here and there, but was unable to build momentum into anything significant.
So how is it that some people can seemingly create more time and increase their productivity? The answer is leverage. Naval Ravikant talks about four types of leverage. Labor, capital code, and media. Labor is people. You can hire people to do the tasks that you're currently working on so that you can focus on even higher-value activities.
If you can build a solid team around you, that frees up your time to focus on other important. Capital is using other people's money. When you buy a house, you don't necessarily put down a hundred percent to buy that house. You get a mortgage from a bank so that you can buy a house that is worth more than what you can currently afford with just cash.
This is capital leverage. Both of these types of leverage require permission. In other words, you need someone else's approval or acceptance to deploy these two types of leverage. The next two types of leverage are permissionless. Both code and media are types of leverage that don't require anyone's permission to deploy.
For example, when you write a piece of software, you can run that software anywhere, anytime. Same thing for media. When I record this podcast, I'm able to publish it and now hundreds or thousands of people can listen to the same podcast without any additional effort on my part. Now, here is where time comes in.
Time is the amplifier of this leverage. Let me repeat that because this is so critical. Time is the amplifier for whatever leverage you're currently deploying. Imagine having time on the x-axis of a graph. It just flowed to the right, constantly like a body of water flowing down the. Whatever you're measuring as your output on the Y axis, you must make sure that for each unit of time that passes, you're getting more than one unit back in return.
If this happens, you've created a system that generates more than one unit of output per one unit of input per time. Over time, you will eventually see a hockey stick growth curve that everybody knows. Let's do an example. You have an ambitious business idea that requires a lot of upfront capital. You raise funding, which is essentially other people's money.
That's capital leverage. Now you have the funds to go out and recruit the smartest people to help you build a team around you. That's labor leverage. Now your team writes code to solve a particular problem for your customer. This enables your company to serve many customers all at once. Finally, you document your journey and share it with your target audience in a blog, YouTube channel, a podcast.
Wherever your potential audience may hang out. Your content is evergreen and you may find new customers through this channel. This is media leverage here. You have all four types of leverage working for you at once. As time passes by. If you want to have time working for you, you need to have the right type of leverage that compounds over.
Let's do an interesting exercise. Let's invert this and see what happens. If you didn't use any leverage in this scenario, So you have an idea for a business. You bootstrap it using your own money. You don't hire anybody else because you're either not making enough money or afraid of losing control, and you don't share what you're doing and keep everything to yourself because you're afraid of being judged by your friends, family, or whoever.
As time passes by. What's gonna happen? Now, I'm not saying that you should always go out and raise venture capital funding. In fact, my own company is bootstrapped. Bootstrapping is harder to grow, but you can still think about and apply these types of leverage on a smaller scale. For example, you can hire offshore virtual assistants for your back-office operations to keep your labor costs lower.
You can get a loan from the SBA to help you expand your business. You can look for different types of software to help you streamline your operations so that your overhead cost is less. You can start documenting your business journey and sharing it with your audience. Here you're still utilizing all four types of leverage while still being mindful of your cost.
The key here is to utilize leverage to your advantage so that as time passes, it's doing the work for you. This is how you can have time on your side.
Now, it is possible to have time work against you as well. Remember that time is the amplifier or compounder of leverage. If you have a negative flywheel where for every one unit of time that passes, you're actually producing a negative output. This can be a very dangerous cycle. If you have a negative flywheel, you need to identify it immediately and take steps to get out of it.
For example, let's say your business operation is. And for each client you bring on, you're actually increasing your cost more than the revenue being generated for each new client. You don't realize what's happening, and you hire a sales team to go out and get even more clients thinking that you just need more clients to earn more revenue, which in turn increases your cost even more without you realizing it.
Now, we have a dangerous situation here where you've actually deployed leverage on top of this negative cycle, hiring a sales team to continue accelerating this downward spiral. You may not notice the impact right away, but in a week or a month, or a year from now, you will see the negative effects.
Before we end, let's do some exercises to illustrate the power of compounding.
But before that, if you're enjoying the show, you can subscribe to this podcast or leave a five-star review by going to FirstClassFounders.com/review. Now, let's finish up this episode with some examples illustrating the power of compounding. I'm always amazed by the power of compounding as the popular saying goes.
You overestimate what you can do in a year, but underestimate what you can do in a decade. Do you remember what you were doing exactly a year ago? Maybe things aren't so different. How about 10 years ago? Look back at how much you've changed over the last 10 years and how much you've accomplished. This is the power of compounding through time.
Here's another fun exercise. If you were given a single dollar bill today and that dollar doubled each month, could you guess how much you would have in one? You would have a little over $4,000 after the first year. Now, do you know how much that would be after the second year? You would have close to $17 million.
That's compounding at its finest. Here's a quick fun fact. Compounding is how Warren Buffett built his wealth. In fact, 99.7% of Buffet's wealth came after his 52nd. Pretty crazy to think about. To summarize this episode, you want to utilize the four types of leverage in your business, labor, capital code, and media, and create a positive flywheel.
Once you have this flywheel, time will amplify and compound this flywheel onto something much larger. On the flip side, if you have a negative cycle, you need to immediately course-correct it and fix it before time amplifies it and makes it even bigger.
All billionaires have one thing in common. They master the art of decision-making, and that is why First Class Founders exists. The main benefit, the reason why you want to listen to First Class founders, the reason why you want to upgrade and gain access to all of the members-only perks is because First Class Founders gives you the tools to build your very own problem-solving toolkit so that you too can become a great decision maker like Charlie Monger, Jeff Bezos, and Elon.
If you want to get the most out of First Class Founders, head on over to FirstClassFounders.com/join. In the next episode of First Class Founders, we'll discuss bottlenecks and constraints. On the surface, they may sound similar. What is the difference between the two and why is it important for your business?
Here's a hint. One is good and the other one is detrimental. Can you guess which one? Thanks for listening, and I'll see you in the next episode of First Class Founders.