Infinite leverage

Infinite leverage

In corporate law, a firm’s “leverage” refers to the number of associates for each partner. This ratio is meaningful because it determines the amount of money a partner can make. While there are limits to the hourly rate a partner can justify charging for their own time, billing for 3, 5, or 10 associates on top creates a multiplier effect on that rate. This multiplier can lead to curious outcomes such as pinstripe suits and designer pocket squares.

The law firm example is a specific case of human leverage, which is the basis for the modern org chart. The more people you can manage, the greater the power of your actions. In the same vein, financial leverage refers to the art of taking on debt to buy a company or asset. The more leverage a company has, the bigger the investment can be, and the more they stand to gain from the returns. When a private equity boss hears the word leverage, they see dollar signs (or suits and pocket squares).

So what does this have to do with software?

There is a third type of leverage used since the invention of the wheel: mechanical leverage. Rather than putting more people under you in the org chart, the objective is to replace those people with machines that can automate their tasks. This is beneficial because machines can be cheaper to run (and less fussy), so you can increase your leverage multiplier even further. From industrial factories to ATMs, mechanical leverage has driven the capitalist dream for centuries.

Software is the latest chapter in the pursuit of leverage. Because of its virtual nature, software costs nearly nothing to replicate and distribute, which means it can represent an infinite workforce at your fingertips. Where traditional machines tackle physical tasks (like making a shoe), software solves problems of knowledge and information, like connecting buyers and sellers, coordinating teams, or recommending cat videos.

With the prospect of infinite leverage, it is no wonder software has been “eating the world” for the past few decades. Even traditional human-based industries — like law and finance — that initially saw low-cost software as a threat to their $800 billable hour, are now using it to serve 100x more clients than was possible before. As Archimedes put it “Give me a lever long enough… and I shall move the world.”