FrameworksThe Leverage Gap
The Leverage Gap
A framework for understanding the difference between creating an opportunity and retaining the power to control its outcome.
Overview
The Leverage Gap helps you see what is shaping the outcome beneath the surface.
The Leverage Gap describes the difference between seeing an opportunity, making it possible, and retaining enough capital, governance, and contractual power to control what happens after it closes.
A person can originate a transaction, assemble the people, take the early risk, and still become structurally vulnerable when the capital arrives. Creation and retention are different skills.
The elements
- 1
Creation
The insight, relationships, and early work that make a transaction possible.
- 2
Capital
The financial power that determines who can fund, wait, and negotiate.
- 3
Control
The ownership, governance, information, and termination rights that survive closing.
- 4
Optionality
The credible alternatives that prevent commitment from becoming desperation.
How to use it
- 1
Before pursuing a deal, separate the value you can create from the power you will retain afterward.
- 2
Review ownership, voting rights, board control, dilution, termination, and transfer terms before your leverage disappears.
- 3
Build alternatives early enough that walking away remains real.
Common pitfalls
- Treating capital as the only form of leverage.
- Assuming originators automatically retain influence.
- Mistaking a large percentage of a weak deal for meaningful control.
Essays that explore this framework
2 essays available
Buying Madoff
How I acquired Bernie Madoff’s market-making business—and learned that creating value and retaining it are entirely different skills.
The Opportunity I Couldn’t See
While I was consumed with buying Madoff’s market-making business, one of the best opportunities of my career called me directly. I told him I did not have time.