Environmental Leverage: Your Position Changes Your Ability

Transcript

I’ve been spending a tremendous amount of time on leverage and not leverage in the way we usually talk about it, where we use money or people or technology to multiply what we can do. I’m thinking about it slightly differently.

There’s this quote from Archimedes where he says, “Give me a lever long enough and a place to stand, and I will move the world.” Most of our conversations about leverage focus on the lever. Things that allow one person’s effort or judgment to reach much further than it otherwise could. But there are two parts to that quote: there’s the lever, and then there’s the place to stand. And I think we massively underestimate the second one.

Where are you standing? What are the conditions around you? What game are you playing? What’s that game reward? Who are you surrounded by? All of these questions deal with where you’re standing. And once you start exploring this, you realize how much the environment around a person can function as a form of leverage itself. So I call this environmental leverage, and often people don’t factor it in.

This idea of environmental leverage is pretty simple. All it is is: the exact same quality, in the exact same person, can be worth almost nothing in one environment and be incredibly powerful in another. Because power, or ability, or strengths are often much more dependent on the environment than we usually admit.

So if I were to ask you, who would win the fight, a shark or a tiger? I’m assuming your first question would be, “Well, where are they fighting?” Because in the ocean the sharks are going to dominate, but on land it’s helpless. The animals had the exact same traits, but in certain environments their greatest traits became irrelevant or mediocre.

And it’s so often true with people. Someone might look lazy or mediocre in one environment, and then if you actually switch them into another environment, all of a sudden their abilities get maximized. Now, the person didn’t change whatsoever — the environment changes what the person is capable of doing with what they already have.

We can think of a trait that often gets classified as a positive. So think of patience. We talk about patience like a virtue. Warren Buffett often gets associated with extreme patience. But patience is only useful when the game rewards patience. So if you take Buffett and you put him inside of a fund structure where the investors can redeem their money whenever they get scared, or if you gave him quarterly performance pressures, or if you compared him to the S&P every three months, what happens? How valuable is patience now? He can be the most patient person in the world internally, but if his capital structure forces him to behave impatiently, then that environment has neutralized the trait. But then when you take his trait of patience and you put it in a structure like Berkshire with long-duration capital, insurance float, no one demanding their money back instantly and all of a sudden it becomes much more valuable.

And so I see this dynamic happen often, where we spend so much time thinking about: How do I get better? How do I become more disciplined? How do I think clearer? How do I get more productive? And those are, and can be, useful questions. But we rarely ever explore the second part of Archimedes’ quote — where we’re standing. Start asking yourself: what conditions would make the best parts of me become more valuable? That is a very different question. And as you know, I’m obsessed with great questions, because asking great questions gives you better results in life. And when you start asking questions about environment, it forces you to think deeper, and not just about the person, but about the conditions around the person.

I find it interesting how obvious nature makes this. I mentioned the shark and the tiger a minute ago. If you take an animal out of its natural habitat, all of a sudden it becomes weak, it can’t survive, it dies. It still has all the same attributes, but it’s less effective in a different environment. The shark, or an orca. They’re the apex predator in the ocean. You put them in the Serengeti, they’re irrelevant. It hasn’t all of a sudden become a weak animal; it’s that the environment determines it. But continually, in our own lives and around other people, we’re judging them without really accounting for the terrain they’re operating in.

We might see someone who is intense, or aggressive, or obsessed, and that’s often viewed as a negative. But if you put them in the right environment, that gets rewarded. Aggression can make someone in one environment absolutely indispensable and create an incredible company, become an amazing investor. But it can also destroy them in another. It could be the worst thing possible for your marriage. So that dynamic — that your Achilles heel in one game can actually be part of your competitive advantage in another — is really interesting.

I saw this all the time playing lacrosse. There would be certain guys who had certain attributes or abilities that a coach didn’t value, and then the team would bring in a new coach, or they’d switch programs, and the new coach or the new program loved those attributes — and all of a sudden someone who seemed mediocre or irrelevant on one team was like a brand-new player who flourished.

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It makes me think — when I was growing up, there was a player at Princeton, and Princeton was the dominant team during the late nineties and early two-thousands. They had a guy named B.J. Prager. B.J. Prager was known as a crease attackman: he would literally stand next to the goal, and his teammates would jam the ball on the inside to him so he could shoot very quickly and score. And B.J. Prager scored a crazy number of goals. He actually scored the overtime game-winning goal in the 2001 national championship game against Syracuse — a game I was at.

So I remember thinking about B.J. a lot growing up. And I’m saying all of this because B.J. Prager went down as one of the greatest crease attackmen of all time. But what’s interesting is, there are a ton of teams and coaches who don’t even use a crease attackman. So can you imagine if B.J., during his career, didn’t go to Princeton? Say he went to a team like Syracuse that wasn’t using a crease attackman — he probably wouldn’t even play. So on one team, in one environment, he goes down as one of the best of all time; in another environment, he’s not even playing. The environment often determines the value of the underlying trait.

And we often describe these traits as fixed — like they have a fixed value: power, or strength, or ability. But it’s so often contextual. So, a person who might be able to bench press 400 pounds but won’t be vulnerable where the partner — which one are they? Are they strong? Are they weak?

So a major error I see people make is, they try to copy the traits of the successful people — but what they don’t remember is that certain traits won’t work in different terrain. So I could have spent my entire youth trying to become B.J. Prager and play crease attack. But if a team doesn’t use a crease attackman, how valuable is it?

And if that’s true, then one of the most important decisions you’re ever going to make is choosing where to put yourself — where to stand. Or, as I like to say: what game are you going to play? Are you choosing a game? Are you putting yourself into a game where the things that are naturally strong in you actually matter, actually are valued?

You know, it connects the idea I’ve talked about before: nature game fit. Are you playing a game that fits your nature? The right game, when you play it, doesn’t constantly require you to suppress your instincts in order to succeed. It actually rewards you for becoming more of yourself. The shark becomes an apex predator because he’s being himself in his natural habitat. Buffett gets rewarded because he’s being Buffett in an ideal structure.

And I don’t want you to think this has only to do with power, or apex predators. You can think of something like an elephant. They aren’t hunting other animals, but just because of their walking and their digestion, they plant new forests, they carve new paths — they’re ecosystem engineers. So if we told the elephant to be more like a lion, it’s going to fail. But by being themselves in the right environment, it becomes mutually beneficial.

Environmental leverage goes so far, and is so important. I want you to continually think about: how can I change the conditions so that the things I do naturally become more valuable? And in the beginning, you’re usually just trying to discover the right environment. That’s the move — you’re looking for it.

But there’s a progression here, and I’ll talk about that progression. When you’re young, you usually just accept the environments. You go to school, you take a job, you join a company, you accept whatever meeting schedule or environment or incentive structure that gets thrown at you — you’re basically dropped into a habitat someone else has designed. But as you develop more agency in your life, you start choosing environments. You become more selective with the company you join or the role you’re going to take. You choose the people in your life. You choose where you live. You even choose what kind of customers you’re going to work with.

But I think the highest level is when you start constructing the environment itself. So you begin with more thoughtful questions. If you’re a capital allocator, you think about: what kind of capital structure allows me to operate at my best? What kind of business model fits how I think? What are the people that actually bring out my best judgment — and can I surround myself with them more frequently? You can think about your clients: how many clients can I work with before the quality of my thinking drops? That’s one of the questions I think through a lot. What kind of calendar can I construct that lets me do my best work? What should I never actually put on my calendar? An interesting one to think about is pressure: what kind of pressure sharpens me? What kind of pressure actually makes me work?

So you start thinking about engaging with more thoughtful questions. You stop asking, “Where should I go?” You start thinking, “What do I need to build around myself?” Buffett did this in a great way. Craftspeople often do this in a great way. And I think founders who really understand themselves, they eventually do this as well. And I think great organizations — they do this for their people.

So if you lead a team, the question to ask yourself is: are you cultivating the conditions so your people can do great work? You think through everything. You think about how the office is designed — the architecture, the feel. You think about the number of meetings you have. You think about the amount of pressure, and time, and culture. You think about all of those dynamics, because you realize everything in the environment influences how the people inside the environment are going to operate.

So there’s this interesting thought experiment I like to play with the leaders I work with. What I want you to picture is your exact same team — exact same abilities, exact same experience — but I want you to start changing the environment. What would happen if you eliminated meetings? What would happen if you had more meetings? What would happen if the office design changed? What if you went remote? What if you took more time in the office? What if you had more team offsites? You start playing with the variables around the environment, and it allows you to start thinking about what you could do differently — what you can construct, in terms of an environment, to allow each person to do their best work.

I like to do this at an individual level as well. You can do the same-person test. What you want to do is take the exact same person — you can do this with someone on your team, you can even do this with someone in your family. Think about the person exactly as they are: same intelligence, same temperament, same strength, same weaknesses, everything exactly the same. The only thing that changes is the environment around them. So start manipulating all of the environments around them. What happens? Often, almost everything. Literally — when you completely start shifting the habits, the routines, all of those elements around them, everything changes. And if that’s true, then we probably overestimate the person and underestimate the system around that person.

So I’ll see this a lot. I’ll often work with founders or CEOs, and a lot of times they say they only hire talented people. And I’m always thinking, “Great.” There are tons of companies filled with great people producing mediocre results. And then there are environments — companies where ordinary people start performing above what you would expect. That’s environmental leverage. Is the environment you’re creating, or in, or standing in — is it actually allowing you to become better?

Environmental leverage, in my opinion, is one of the most powerful forces you’re probably not thinking about. And I also want you to think about how environmental leverage can work against you. Leverage magnifies things. So if the environment is bad, it’s going to magnify the wrong things. If you take a poorly run organization and you give them more capital, they’re just creating a larger, more disorganized, mediocre organization. You had thirty confused employees; all of a sudden you have one hundred confused employees. That has not helped your situation. And that’s one of the things I think gets missed. People talk about leverage — but more leverage does not necessarily automatically mean better.

So over the next week, I want you thinking about yourself. I want you thinking about the people you work with, or the people you lead. And when you find yourself saying things like, “I can’t focus” — okay, think about the environment. You can’t focus under what conditions? For how long? What are the interruptions? How many Slack channels do you have open? Do you have thirty-seven tabs open? Are you doing work you care about? All of these elements — around environment, around where you stand, as Archimedes said — are going to determine much of your ability.

So I want you thinking about that: thinking about the environment you’re in, the one you’ve selected into, and — if you have high agency — the one you’re creating. So ask: does the environment I have created bring out the best abilities in me and my people? And if not, what can I change to get closer to making that a reality?