In the past, I’ve talked a lot about personal branding and how it helps you get better opportunities, create more optionality, and have pricing power.
But there also exists an underrated and almost magical aspect to personal branding that is related to whatever I mentioned above but rarely gets discussed — mostly because it feels deceptive.
It’s called Narrative Leverage.
I initially came across this term via Kevin Kwok, who describes narrative leverage as a form of PE ratio, but for startups and private markets.
He calls it the PR ratio — Perception to Reality ratio.
Let’s take a step back and consider what a high PE ratio does for a public company:
It is cheap cost of capital. It allows the company to raise funds based on the narrative of what they're going to achieve in the future. It is a loan pulled forward from the future.
But a high PE ratio is only good when the management can deliver a high ROIC (Return on Invested Capital). If the management isn't smart enough to deploy this additional capital towards investments in the business that pay high returns, the PE ratio by itself can be quite deceptive. The same goes for the PR ratio.
But let's assume you can deploy the capital you get to better live up to the narrative you've created for yourself.
In that case, it turns into a self-fulfilling prophecy.
Your perception and personal brand helped you gain access to capital and opportunities that made your public perception turn into a reality.
If you have had any experience making money on the internet as a freelancer, you would know how ill-equipped you were to handle those initial clients — both in terms of skillset and professional hygiene. But those clients trusting you with their work is what allowed you to actually turn into the person you put yourself out to be.
Via personal branding, you aren't simply shouting in a public square, trying to pull attention and get noticed; you are intentionally and carefully creating a compelling narrative for yourself that makes people excited to work with you. How and what you do with the opportunities that come your way will then decide if you can back your PR ratio with real results.
Narrative leverage also works for startups, as we discussed in Hype as a Strategy. For startups, narrative leverage helps not just in acquiring cheap capital but also in areas like recruiting, customer development, research, marketing, and establishing culture.
- Narrative leverage makes people excited to work for you.
- It makes customers care more about your product and cements their confidence in the product.
- It makes your team work towards a vision and see beyond their individual roles and feel invested in the success of the company.
But like all leverage, narrative leverage too is a double-edged sword.
If you can't back up your narrative with solid proof down the line, it can all come crashing down.
To put it simply,
1. There are people who talk the talk but can't walk the walk.
2. Then there are people who walk the walk but don't talk the talk.
3. And then are those who talk the talk AND walk the walk.
It's a trivial exercise to figure out which one of these does the best in today's world.
(psst... it's No. 3!)