SLAP formula for wealth creation for entrepreneur

Summary of SLAP framework for wealth creation

In this article, I summarize all the important points discussed over the past 10 articles which I call the ‘SLAP’ framework. Since we finished this arc, I thought I’ll dedicate this article to summarize key learning’s before I move to the next arc.

We started with the definition of wealth – Naval Ravikant in his famous tweetstorm defined wealth as having assets that earn while you sleep. This simple definition helps us differentiate wealth and income. Earning salary or working as a contractor, by this definition, is not wealth but owning a stock or company or real estate is. 

Next, we introduced ‘factory of life’- imagine a hypothetical factory that creates all the good things in life such as fame, health, relationships and money. The biggest raw material this factory needs is time. Wealth is the maintenance to make sure that the machines of this factory are effectively processing the raw material, which is time. Wealth is absolutely crucial because it helps us effectively utilize this important asset we call as ‘time’.


Then we introduced the SLAP formula for wealth creation.

SLAP is a combination of 4 components, specific knowledge, leverage, accountability and patience.

Specific Knowledge

Specific knowledge is something that society wants and needs but does not know how to get. Society needs someone to understand this need, work on a solution, iterate and improve that solution and provide an easy path to get to the destination. The body of knowledge that leads to this path is specific knowledge.

Examples of specific knowledge


Ability to sell products/services/vision/ideas, obsessive attitude with an ability to spend long hours on something , ability to analyze specific patterns and trends in data , ability to code & automate complex human tasks are all examples of specific knowledge.

We looked at the story of Masthanamma and how the 2 gentlemen, Srinath Reddy and Laxman K brought her cooking talent to the world by creating a Youtube Channel (shown below). Srinath & Laxman by themselves did not have the cooking skills but had the specific knowledge to identify someone who does, create high quality videos and then promote them on the internet.


This highlighted the point that specific knowledge is not just about skill but a combination of skill, mindset and persistence. People without skill tend to think that its a major roadblock to what they want to achieve but skill is highly overrated.

Why specific knowledge?

To discuss why specific knowledge is needed – we looked at the last 200 years history. Newer technologies are creating greater impact over a shorter span of time. Technology is causing an accelerated change in the society and the rate of change in society is only increasing with time.

As we move from an industrial economy to an automation economy, value of standard/repetitive tasks is decreasing and value of creative/innovative tasks is increasing. Society will reward those who can bridge the gap between standard, repetitive tasks and the creative tasks – to bridge this gap, we need to equip ourselves with specific knowledge.

How to identify specific knowledge?

We discussed how to identify whether what you are doing has specific knowledge or not. We looked at 4 traits:

Trait 1: First is that specific knowledge is learnt, not taught.
 What is taught usually has a ‘straight line’ learning, at any point, you know what the next step is. Path to specific knowledge is more erratic and you go two steps forward and one step backward.

Trait 2: Specific knowledge is not driven by rewards and incentives. It is driven by intrinsic motivation that is triggered by your pursuit of Mastery, Autonomy and Purpose.


Trait 3: Your biggest advantage is just being you when pursuing specific knowledge..

Trait 4: You are in a state of flow.

We referred to Mihaly Csikszentmihalyi’s book called ‘Flow’. If we plot abilities v/s challenge, we enter a state where our ability matches our challenge and we move in a narrow channel called the state of ‘flow’. As our abilities increase, we are motivated to take up even bigger challenge that further increases our ability.

P.I.L.E framework

We discussed the P.I.L.E framework on how to build specific knowledge. PILE stands for Persist, Iterate, Learn and Eliminate.
1. Eliminate

99% of our time gets spent in eliminating things we don’t want to do and get to that 1% that we can devote our life to. Elimination is the process of moving from awareness to knowledge to specific knowledge. 

2. Learn

We stop learning once we get into the real world. This leads to a learning gap that widens over time. To gain specific knowledge, the process of learning has to be continuous.

3. Iterate

Anything worthwhile in long term won’t be easy upfront and demands a minimum failure rate – only once you iterate and go past these hurdles will you be able to accrue specific knowledge


4. Persist

Lastly, if you assume 8 hours a day, 5 days a week for 52 weeks, you get approximately 5 years. Building specific knowledge that a society of 7 billion people values needs persistence – there are no shortcuts here. 


Leverage

Robert Kiyosaki, author of book, Rich Dad and Poor Dad, has given us a simple definition of Leverage

Leverage is an ability to do more with less. 

All of us have a limited access to resources – When we effectively combine our resources, such as time, relationships, capital, knowledge and strength, we generate an output which is valuable to the society & society pays us for that value. But since our resources are limited, the output we generate is also limited.


If we can tap into external resources, we suddenly can achieve more with less. That is leverage.

Examples of leverage

We noted that mortgage, teamwork, investing and house maid are common forms of leverage we use in everyday lives.  Books, habits, giving and meditation are some of the uncommon forms of leverage in our lives.

The key secret of leverage is that it decouples outputs from inputs. This is what makes leverage powerful.

Types of leverage

We then introduced the 3 types of leverage: Labor, Capital and Product. We gave examples for each type of leverage.

Labor is a crude form of leverage and needs a lot of effort to sustain – not everybody can use labor as leverage effectively. That is why being a politician is one of the toughest professions in the world.

Second is Capital – it is more scale-able and easier to manage. But it is accessible only to a few people. Labor and Capital are permission based leverages because you need to get someone’s permission to part with their labor or capital.


Newest form of leverage is Product – Product is something that can be scaled infinitely with minimum or no replication cost. Product is the only permission-less leverage available. 

We discussed the unique aspects of Product as leverage:

  • Unlike labor and capital, it doesn’t have gatekeepers
  • It needs small amount of Labor and Capital to create. 
  • It usually comes with a very high degree of specific knowledge
  • Cost of replication is almost zero
  • Propagation vehicle that gives product infinite scale is usually the internet
  • Product eventually attracts labor and capital

We discussed some examples of permission leverage to understand this concept – code, youtube, books are some forms of permission-less leverage.

We are currently in a golden age of leverage where technologies such as cloud, e-commerce, digital marketplaces, youtube and a host of technologies are available to us. 


Patience

Next we looked at patience.

Patience is the belief in the Power Law of compounding.

We introduced the power law as anything that follows the formula: Y = MX raised to the power B. B adds power to the power law. Compounding is the only N’th order power law given to us by the universe.

Power Law Rules

Power law follows 2 rules:

  1. It takes a lot of time to manifest
  2. Once it starts to manifest, the change is rapid

Patience is the ability to not give up at the point when change is most likely to happen. Ironically, change is most likely to happen when it seems most unlikely.

Why patience?

We plotted Drive v/s time and Outcomes v/s time – As time goes by drive tends to fall. When drive falls to a minimum & when the success at this time is below the minimum success line, we tend to quit.

If we can somehow slow down the drop in drive, then we can keep going and enjoy the benefits of the power law. ‘Patience’ is the ability to push the drive curve slightly to the right and arrest the speed of descent. Without patience, the doors to the power law cannot be opened.


Patience v/s procrastination

We differentiated patience from procrastination by saying – procrastination is biding time on an activity with no underlying power law at play. If activity has an underlying power law, patience becomes a virtue or else it simply becomes procrastination. 

Here is a simple flow chart I use to evaluate whether I am being patient at something or procrastinating.

Accountability

That took us to the last component, Accountability. Accountability is the ability to accept risk and fail in public under one’s own name. Three fundamental ingredients of accountability are risk, ownership and public commitment. 

We discussed a painting that depicted Cicero’s story of ‘Sword of Damocles’. The sword is the risk, throne is the ownership and well-being of subjects is public commitment. So the king is accountable but the minister who enjoys all the power of the King but isn’t really accountable.


We discussed the ‘circle of success’ and its different phases as defined in the book ‘Principles’ by Ray Dalio. Circles have stages such as growth, failure, iteration, improvement and further growth. Our life can be broken down into a series of circles, one leading into another.


Forces of nature tend to bend the growth and move it towards the path of failure.

Accountability is the tool that helps us bend this path again towards iteration, improvement and further growth. 


We also differentiated between accountability and responsibility – while responsibility can be shared, accountability is always a single player game. This is because of the ‘principal agent’ challenge described in micro economics. 

Any team that comes together has people with varied levels of risk and reward – there are high risk, high reward people, low-risk, high reward people and low-risk low-reward people. When accountability is shared, this mismatch of risk-rewards creates a lot of pressure in the system and the system ultimately crashes like a pipe burst under high pressure. 


We ended by talking about 4 ways of practicing accountability –

  • One is start a full-time business.
  • Second is to earn 1$ over the internet for the next 12 months.
  • Third is to commit 5 years to something without a Plan B.
  • Fourth is to invest in a project that risks a partial or full loss of your capital.