Tuesday, June 14, 2005

What is Leverage?

What is leverage, and how can I use it to grow my business?

That was the question debated by 10 entrepreneurs at a brainstorming meeting I attended this afternoon. It was a refreshing experience – there was no agenda, no required outcome – just a group of unaffiliated entrepreneurs discussing the process of doing business.

I arrived knowing nothing about leverage. When I covered Big Business for the Financial Times of Canada 20 years ago, “leverage” meant borrowing large sums of money to invest in growth opportunities (usually real estate) that were otherwise out of the company’s reach financially. The idea was that these assets would make more money for the company than it was shelling out to pay interest on the debt.

This group, however, studied the use of leverage in non-financial situations. Essentially, we defined leverage as strategically exploiting (in the good sense) all the assets available to your business. The goal: to reach more customers, increase sales, and become more profitable.

We identified lots of assets that we should all be leveraging more effectively: customers, cash flow, reputation, superior products, relationships and partnerships, knowledge, time, industry contacts, referral sources, etc. We decided the ultimate leverage is that enjoyed by Microsoft, whose software is preloaded in just about every PC sold today.

The first step to successful leverage, we decided, is to achieve focus and clarity. What are you really trying to do? What are the objectives of your business?

Only once you truly understand all that can you effectively exploit leverage, by knowing which areas to invest in, what customers to talk to about joint ventures, how to market your products’ benefits more effectively, or who to ask for referrals.

It was a valuable discussion, organized by StreetSmart marketing expert Michael Hepworth (http://www.results-exchange.com/) and well moderated by Rick Wolfe of PostStone Corp. http://www.poststone.com/, who specializes in leading “kitchen table conversations.” This conversation made us all realize how inadequately we are all exploiting our unique business strengths, but it offered great ideas on how to get started.

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