Naval, a well-known investor in Silicon Valley: How to get rich without luck?

This is a passage shared by Naval. From poor families in New Delhi, India, to “immigrants looking for a living”, and now to a well-known angel investor in Silicon Valley, Naval has achieved financial freedom through his own efforts. He summarized this “making money” skill into one topic: How to get rich without luck?

And the answer to this topic, he also gave it clearly: find expertise, use leverage, cultivate judgment, have the courage to take responsibility, and finally you will get what you deserve.

01 Find expertise

To make money in society is to provide society with what it needs but cannot get. If society has created the products and services it needs, you won’t be needed. So first we need to figure out what you can offer society that it needs but doesn’t have access to, and that comes naturally to you.

This is your specialty.

To find the right specialties for you, think back to the things you did with little effort as a child or teenager. Sometimes, even if you don’t see it as a skill yourself, people around you will notice. Your mother or your best friend growing up will know what makes you special.

Each individual develops his or her own unique expertise through a combination of genes, the environment in which he was raised, and the individual’s response to the environment. Expertise is an integral part of a person’s personality and identity. Once you find an area that you naturally enjoy and excel in, you can keep going in that direction.

No one can compare to you when it comes to “being yourself”.

02Exercising leverage

Gaining wealth requires leverage. Leverage can come from labor, capital, code, or the media.

Labor leverage, that is, getting someone else to work for you. The labor lever is one of the oldest levers, but in modern society, the effect of this lever is not the best. I even think it’s one of the most backward levers. Because managing others is a very complex and challenging job that requires superb leadership skills, and managers will end up being betrayed and devoured by their subordinates.

Capital is the second relatively good form of leverage .

Capital leverage is the use of money to expand the influence of decisions. Capital is a more modern form of leverage, and leveraging capital is difficult and requires certain skills. In the 20th century, people used the leverage of capital to achieve staggering wealth.

The magnifying effect of capital leverage is very obvious. It is easier to manage capital than managers, because with the continuous growth of capital, its management difficulty will be far less than that of managing an expanding team.

The last lever is the newest and most accessible to the average person. This leverage is “reproducing a product with zero marginal cost”. These include books, media, movies, code. Of all the levers that can be used without the permission of others, code is arguably the most powerful—all it takes is a computer.

Stop dividing people into rich and poor, white-collar and blue-collar. The modern dichotomy is “people who use leverage” and “people who don’t use leverage.” Copying a product with zero marginal cost is the lever to study, and the most important one. This latest form of leverage has created a whole new wealth of wealth, creating all the new billionaires.

For the last generation, wealth was created by capital, and it was investors like Warren Buffett who made the fortunes. The wealth of the new generation of rich people is created through code or media. Joe Rogan’s podcasts bring him between $50 million and $100 million a year.

And there’s PewDiePie (Felix), the web host, who I don’t know exactly how much he makes, but it’s definitely more than the news reports say. And, of course, Jeff Bezos, Mark Zuckerberg, Larry Page, Sergey Brin, Bill Gates and Steve Jobs to name a few. Their wealth is derived from code-based leverage.

One of the most important features of the new levers is that no one else’s permission is required to use them or to be successful. To use labor leverage, someone has to decide to go after you. To use capital leverage, you have to have someone provide you with capital, and then you can invest or develop a product. And programming, writing books, recording podcasts, tweeting, and making videos doesn’t require anyone’s permission.

Humans are constantly evolving. Once upon a time, there were no levers in human society. If I chop wood and draw water for you, then 8 hours of labor will only produce 8 hours of results, and the input and output are equal. Later, human beings invented the lever and invented various means such as capital, cooperation, technology, productivity, etc., and human society entered the era of leverage.

In such an era, as a laborer, only by maximizing the leverage effect can we use the limited time and physical strength to make a huge impact. The output of a laborer with leverage increases by thousands of times compared to a laborer without leverage.

For leveraged workers, judgment is more important than the amount of time and effort put in.

03 Make money with judgment

As far as I’m concerned, I want to be paid purely for judgment, not for labor, Naval said. I want robots, capital, or computers to do the actual work, and I make money just by judgment. I think everyone should aspire to have expertise in certain areas and earn financial rewards for doing so.

If we can maximize leverage in our actual work, whether it’s robots, computers, or any other person or technology, then we can all be masters of our time, because no one will measure how much time we put into our work, we Just take responsibility for your own output.

It is conceivable that for a company with a market value of $100 billion, if the choice between two people with 75% and 85% accuracy of judgment, the company will be willing to pay $50 million, $100 million, or even $200 million to hire People with higher accuracy are decision makers. Because the extra 10% judgment is extremely valuable for guiding the direction of the business.

CEO pay is high because of leverage. In judgment and ability, the slightest difference can make a world of difference.

Demonstrating excellent judgment in practical operation and having credible and reliable judgment is very important. Buffett is called “the god of stocks” because of his high credibility. He is extremely responsible for his business, making the right judgment in public time and time again. He is known for his high integrity and has won the full trust of the society, coupled with his excellent judgment, so people dare to bet countless chips on him.

No one asked him how hard he worked, no one asked him what time he got up and went to bed. Everyone said, “Buffett, you just need to get the business right.”

It is critical to have good judgment, as well as a high sense of responsibility and a strong track record. Ordinary people waste their time on short-term thinking, on worthless hard work. Buffett, on the other hand, spends a year deliberating and then taking a day to act. His actions in one day can affect decades to come.

04 Sense of Responsibility: Taking Business Risks in Personal Name

Cultivate a sense of responsibility and have the courage to take business risks in your own name. Society will reward you based on responsibility, equity, and leverage.

Take the real estate industry as an example. In the real estate industry, the lowest level of work is doing house repairs. According to the boss’s request, the repairman goes to the customer’s house at 8:00 in the morning to start work, and can earn 10 to 20 US dollars per hour. There is no leverage effect here. Sell ​​your skills, rent your time, and get paid only a little more than the minimum wage.

One level up is the contractor who builds the house for the owner. Their contracts for projects may be $50,000, and they pay workers $15 an hour, and they pocket the difference. It’s obviously better to be a contractor than a maintenance worker. But how to measure good and bad? How to know the difference? The reason why it is better to be a contractor is because the contractor needs to take certain responsibilities.

Contractors are responsible for the results. If the project doesn’t go well, they can’t sleep at night. Contractors get labor leverage by hiring workers to do the work. They also have more expertise, such as how to organize teams, how to ensure teams meet deadlines, how to deal with legal issues related to city management, and more.

One level up is the real estate developer. What developers do is buy real estate, hire contractors to improve the property’s value through renovations, and then sell the property for a profit.

They may initially need to take out a loan or raise money from investors to buy real estate, then tear it down and rebuild it and sell it. Workers can earn $15 an hour, contractors can earn $50,000 per project, and developers earn far more than that. They buy low, sell high, and make a profit of $500,000 or even $1 million excluding construction costs.

At this point, it is important to note: what does the developer need to do? All they need to do is take great responsibility. Developers have to take on more risks and responsibilities, and they need to have more expertise while having more leverage. They need to understand financing methods, laws and regulations related to urban management, the trend of the real estate market, etc., and also need to judge whether the risk is worth taking. Its work is much more difficult than that of a contractor.

One level up is the real estate fund manager. Real estate fund managers have enormous capital leverage. They deal with lots and lots of developers, and they stock up on houses.

One level up could be someone who wants the most leverage in the real estate market and has the most expertise. This person will say, “I understand all aspects of real estate, from basic home construction to properties and sales, to the workings and boom cycles of the real estate market. I also understand the tech industry, how to recruit developers, how to write code, I know how to build a good product, I know how to get venture capital, how to get returns, and I know how technology and finance work.”

But obviously, this is not realistic because no one person has so much knowledge. To achieve your goals, you can bring people with different skills together and form teams. In this way, team members combine expertise in technology and real estate.

Such a high-risk, high-reward approach means that the company takes on a huge responsibility, as well as a significant risk, as the entrepreneur puts all their time and energy into it. Companies hire a lot of developers, which is code leverage. The attracted investment and the initial capital invested by the entrepreneur constitute capital leverage. The company also employs top talent in the industry, such as excellent engineers, designers, and marketing experts, which is labor leverage.

The end result could be companies like the real estate search engine Trulia, the Internet real estate agency Redfin, or the free property appraisal site Zillow, with wealth creation potential of hundreds of millions or even billions of dollars.

As you move up the hierarchy, leverage becomes more pronounced, responsibilities become more important, and more expertise is required. Increase capital leverage on the basis of labor leverage, and increase code leverage on the basis of labor leverage and capital leverage. In this way, the scale of entrepreneurship is getting bigger and bigger, and it is getting closer and closer to having all the upside potential and realizing the extreme value of value, It’s no longer as simple as just getting a salary.

Naval summed up his set of principles and experience into one simple sentence: Productize yourself.

“Productize yourself”, this sentence has two key points, one is “self” and the other is “productization”.

“Self” is unique, and “productization” is to exert leverage; “self” has a sense of responsibility, and “productization” requires expertise.

Therefore, these two points can summarize all the above concepts. If you want to achieve your long-term goal of getting rich, you need to ask yourself, “Is this something or service that is in demand but not available?

When you get a positive answer, ask yourself, “Am I productizing? Am I scaling? Is the choice to scale by labor, capital, code, or media?”

It’s hard to “productize yourself”, and it may take decades, but it’s not that it takes decades to execute, it’s to spend most of your time thinking: What unique value can I provide? How much responsibility can I take? What levers do I have to pry?

This article is reprinted from: https://news.futunn.com/post/15913016?src=3&report_type=market&report_id=206718&futusource=news_headline_list
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