The 4 Business Levers
Reading time: 9min
Let’s invoke the best Pokémon from our Pokedex: Warren Buffett.
Warren once said:
“The perfect business costs a penny, sells for a buck, is habit-forming, and no one else can replicate it.”
In other words, the perfect business:
- is unique
- is expensive
- sticks
- and costs nothing to make
So, we talked about it in “The Nature of Business”:
- Business is a game.
- An infinite one
The players are both known and unknown. The rules are constantly changing and evolving. There is no agreed-upon goal. The game never ends. The game’s purpose is to keep playing as long as possible.
To ensure “winning,” a business must abandon the pursuit of power and seek to master endurance.
Stamina > Power
To master endurance, in theory AND in practice, we’ve defined the 4 levers any business should master below. For the 3 personality traits any founder should develop to pull these levers effectively and durably, read “The 3 Founders’ Character Traits”.
Principles and Philosophy
Warren Buffett is right: the perfect business costs a penny, sells for a dollar, is habit-forming, and nobody can copy it. If its founders are unimpeachable, risk-averse, and long-term thinkers, no one can stop them.
Lever 1: Expensive
A business can only lower its prices to zero, but can go infinitely high in the other direction. Whoever wins the “race to the bottom” is bound to lose in the game of business.
Lowering your prices to zero is never the answer. The only way to prosper over the long term is to raise your prices.
To raise your prices, deliver more value to your customers.
“Price is what you pay. Value is what you get.”
— Warren Buffett
Lever 2: Low Costs
“If you bet poorly small, you bet poorly big.”
— Warren Buffett
Someone who doesn’t earn much is poor.
Someone who makes a lot and spends it all is also poor.
Making more money doesn’t mean earning more. If a business spends more than it earns, that business is poor.
To last, you have to make money AND keep it. Earning more and spending less is the key to lasting and enduring.
Lever 3: Sticky
There are only three ways to make more money:
- Sell for more
- Increase your number of customers
- Keep them longer and bill more often
Keeping your customers for life can make you “win” the survival game. The perfect business relies on delivering enormous amounts of value at a premium and low cost over generations.
Lever 4: Unique
The perfect business is impossible to copy:
You can try to reproduce what it does, but nobody does it like they do.
Delivering an incredible amount of value in a unique way enables a business to obliterate its competition without even looking at it.
The perfect business has no competition because it evolves alone in its own universe. The perfect business doesn’t copy what others do. It does what only it can do.
From Theory to Practice
It’s always easier said than done. The theory ends here. Now, let’s see what each of the 4 levers looks like in practice.
Make It Expensive
Swapping all your salmons for beans is a pain if you need beans and crave smoked salmon. Bartering isn’t convenient all the time.
But every problem has its solutions:
Humanity took malleable pebbles. We flattened them to fit in your pocket. We stamped Caesar’s head on them to understand they held “value” in the Roman Empire. And boom, we invented something ultra-useful: coins.
Money is used to trade something you can find everywhere for something you need but can’t find everywhere. That’s why we exchange relatively cheap metal or similarly cheap paper for “value.”
Charging more isn’t rocket science. Asking someone for more money isn’t very complicated:
If you bring more value, you can ask for more pebbles.
The real question is: how do you deliver more value?
Let’s go back to the salmon example. We bring maximum value by addressing all the needs and problems of the guy with the pebbles... without making it difficult, time-consuming, or tedious for him.
To make it easy for them to give us their pebbles without complaining, we have to make it easy for them to believe in our ability to help. It’s as simple as that.
Selling high tickets:
= Great sequence of offers
+ Great brand
+ Great experience
+ Undeniable perceived value
+ Outstanding value delivery
Lower the Costs
More is easy. Saying yes is easy. Adding things is easy. But doing less, saying no, deleting, removing, tidying, sorting, simplifying... that’s the real difficulty.
That’s the part requiring dedication, attention, and making difficult choices. It’s the part that requires love, not just excitement.
We should always start by asking ourselves, “What can we remove?” instead of “What can we add?”
The focus part is the bit everyone hates doing. It’s the “boring work”.
It’s the hours spent making the hard choices, the tweaks, the little changes. But focus is also your opportunity to shine.
This is where your business makes the real difference.
Those who don’t like doing the grunt work do it poorly. They cut costs where the business needs room to breathe. They cut out essential elements of the business because “they’re too expensive to keep around.” They don’t try to understand their business. They don’t do it with love. They take the easy way out.
Reducing costs means avoiding paying a heavy price tomorrow for the consequences of today’s decisions.
Lowering costs means adding comments to your code to help you better understand it tomorrow. It means avoiding adding 50 new features when you can improve the 15 you already offer. It’s about avoiding the need to hire 150 people after raising funds when you can hire the right 50 to improve everything.
Reducing costs means striving for relevance before succumbing to laziness.
Lowering costs means avoiding filling the void created by the fear of losing control. It’s about embracing that fear, letting yourself feel it, letting it overwhelm you, and finally braving it.
Reducing costs is all about doing what is right, not what is easy.
Reducing costs:
= Great offers
+ Smart production
+ Efficient customer acquisition
+ Relevant and reliable brand
Make It Sticky
As mentioned above, the perfect business is habit-forming.
To ask your customers for money regularly, you must consistently deliver value.
To distribute value regularly, you need to think about a great system that enables this distribution.
This is the moment when experts mumble pseudo-scientific bullshit around “business modeling.” Let’s not.
A “business model” is a big word the so-called “experts” use to talk about creating a sequence of offers that works for prospects and clients.
In simple terms:
- Create offers
- Put them in a specific order, so you provide even more value to clients
- Find a way to hype clients about:
- buying the same thing forever
- buying the same thing again and again
- buying more adjacent things
For those of you who care about humanity, create a sequence of offers that form habits among your customers AND benefit them as much as you.
Recurrence empowers a business to live more serenely. Habit creation enables a business to ensure it receives money regularly for the value it provides to clients.
This way, the fear of dying tomorrow fades. Our mental burden is reduced. Our minds open up to new ideas. We become more creative.
The business and the people inside it stop trying to protect themselves and can start serving our customers more efficiently.
All that remains is to be present in the moment to serve our customers well.
Helping more people stick with our brand helps more people get value from us.
Recurring value distribution:
= Great sequence of offers
Lever 4: Unique
The taste of McDonald’s nuggets. The roar of a Ford Mustang. The purr of a Harley-Davidson. The lines of a BMW grille. The intuitiveness of Apple products. The singularity of a Christopher Nolan movie. The quality of a Birkin Hermès. The refinement of a Cartier jewel. The defiance of a Jack Daniel’s. The unique taste of a Coke. The ingenuity of a Tesla.
Every brand above has competitors on paper. And yet, each has something extra that makes us question all the other players.
Being unique is what makes a business stand out.
By the way, that’s how influencers sell their bathwater. Customers don’t buy water... they buy Michael Jordan’s bath water!
Anyone can copy what they do, but no one can do it like them.
For your business to be able to sell its bathwater, i.e., to sell something that costs nothing to produce and brings a lot of value in a unique and recurring way, it has to be unique.
It couldn’t be simpler. Everyone’s giving away the tip for free every day. The thing is, nobody does it:
You and your business have to be singular. To be singular, it has to be authentic. Being authentic is behaving as if nobody could ever punish you.
It’s not about doing what others don’t do or saying what others don’t say.
Thousands of people make movies. Thousands of people are trying to make movies that stand out. Only Christopher Nolan makes movies like Christopher Nolan.
You have to do what only you can do:
- Never dilute yourself for anybody
- Associate yourself with stuff truly aligned with you
- Create a web of associations only you can create
- Force all of the above even more when you think you’ll get punished for it
Being unique:
= Unique sequence of offers
+ Unique brand
+ Unique experiences