While leveraging assets and capital are fundamental wealth-building techniques, these techniques cannot succeed without also leveraging people. At the end of the day, every deal, investment or transaction needs people to manage or oversee it. No matter how rich you are, you still only have 168 hours per week. To our knowledge, no one has figured out how to be in two or more places at one time. As a result, the single most powerful type of Leverage is the Leverage of people. By properly leveraging people, you can have multiple levers working at once. This is where greater wealth is created.
This chapter is going to explain why—and how—to get the most out of leveraging people. More specifically, we will focus on:
1. Leveraging employees
2. Leveraging advisors
The most common method of leveraging people is by hiring employees. Those with financial means can afford to hire other people to do jobs for them. The employer has successfully Leveraged people if the collective group of employees helps the owner earn more money than the amount it costs the employer in salaries and benefits.
Simple Leverage: Pay Less Than Productivity
The more employees you have, the more potential Leverage opportunities you have. Sometimes you hire staff to support these employees. That is an investment that you hope increases the productivity of the other employees by more than the cost of the administrative help.
To Leverage your employees successfully and yield a profit, a simple rule is to pay people less than the value they provide your firm. Law firms have followed this lesson for years. For example, law firms may bill out attorneys to their clients at $200 per hour and require the attorneys to bill out 2,000 hours per year. Though the firm collects $400,000 for the services of the particular attorney, they may only spend $300,000 for that particular attorney’s salary, benefits, and allocated overhead. The firm earns $100,000 per attorney. If they can afford to hire 10, 20 or 100 less-experienced attorneys and can find enough work to keep them busy, the senior partners of the firm can earn a very nice living-10 to 25 times that of Average Americans and 5 to 10 times that of a less experienced attorney. In doing so, law firms are leveraging their employees’ productivity. They are training less expensive attorneys to do the work. This, in turn, enables the senior partners to focus on very profitable activities like landing contacts and building relationships for the firm.