Tier 4

lpd - Leverage Point Discovery (Arbitrage & System Insertion)

Leverage Point Discovery (Arbitrage & System Insertion)

Overview

Most valuable strategies exploit leverage points - places where small effort produces disproportionate results. This procedure searches for multiple types of leverage:

PRIMARY TYPES (position-based):

  1. ARBITRAGE: Position yourself between disconnected systems/markets that have inefficient information/price/value flow. Example: Dropshipping (supplier market ↔ you ↔ retail market)

  2. SYSTEM INSERTION: Insert yourself into an existing system’s flow where there’s friction, complexity, or unmet needs. Example: Payment processors (buyer → you → seller)

ADDITIONAL TYPES (extensible):

  • Network effects, compounding, automation, aggregation
  • Scarcity, standards, trust/reputation, data/learning, optionality

All leverage types find where value is trapped, flowing inefficiently, or could be amplified with the right positioning.

Goal

Find high-leverage opportunities by identifying gaps between systems (arbitrage) or friction points within systems (insertion opportunities). Systematic search across leverage types reduces intelligence needed.

Steps

Step 1: Map the Landscape

Identify all the systems, markets, and flows in the domain.

Ask:

  • What are the major systems/markets?
  • Who are the players (buyers, sellers, intermediaries)?
  • What flows between them (money, goods, information, attention)?
  • Where are the boundaries between systems?

Output: System/market map

Step 2: Search for Arbitrage Opportunities

Look for gaps BETWEEN systems where value/information flows inefficiently or not at all.

For each pair of systems, ask:

  • Is there a price difference? (buy low, sell high)
  • Is there an information asymmetry? (know something one side doesn’t)
  • Is there a timing gap? (faster than the market corrects)
  • Is there a geographic gap? (available here, needed there)
  • Is there an access gap? (you can reach both, they can’t reach each other)
  • Is there a format gap? (incompatible systems you could bridge)

Output: Arbitrage opportunities

Step 3: Search for Insertion Opportunities

Look for friction points WITHIN existing flows where you could insert yourself to add value.

For each flow, ask:

  • Where is it slow? (you could speed it up)
  • Where is it complex? (you could simplify it)
  • Where is it unreliable? (you could make it reliable)
  • Where is it expensive? (you could make it cheaper)
  • Where is it opaque? (you could make it transparent)
  • Where is trust lacking? (you could provide trust/verification)
  • Where do systems not talk? (you could translate/integrate)
  • Where do people struggle? (you could provide an easier interface)

Output: Insertion opportunities

Step 4: Search Other Leverage Types

Go through additional leverage types and ask whether any apply.

For each type, consider:

  • Network effects: What gets more valuable with more users?
  • Compounding: What builds on itself over time?
  • Automation: What manual work could be systematized?
  • Aggregation: What fragmented things could be combined?
  • Scarcity: What limited resources could you control?
  • Standards: What coordination problems need solving?
  • Trust: Where is credibility hard to establish?
  • Data: What learning loops could you create?
  • Optionality: What positions preserve future choices?

Output: Additional leverage opportunities

Step 5: Evaluate Each Opportunity

For each opportunity found, assess:

LEVERAGE FACTORS:

  • Value gap: How much value is currently lost/trapped?
  • Defensibility: Can others easily copy you?
  • Scalability: Can this grow without proportional effort?
  • Sustainability: Will this opportunity persist?

FEASIBILITY FACTORS:

  • Access: Can you actually get into position?
  • Resources: Do you have what’s needed?
  • Risk: What could go wrong?
  • Competition: Who else is trying this?

Output: Evaluated opportunities

Step 6: Rank and Select

Rank all opportunities by:

  1. Leverage potential (value × defensibility × scalability)
  2. Feasibility (access × resources × low risk)
  3. Fit with your resources/skills

Select top candidates for deeper analysis.

Output: Ranked opportunities with top selections

When to Use

  • Looking for business/strategy opportunities
  • Want high-leverage approaches (small input, large output)
  • Searching for competitive advantages
  • Exploring new markets or niches
  • Want to avoid competing on pure effort/resources

Verification

  • Systems and flows were mapped before searching
  • Both arbitrage AND insertion types were searched
  • Opportunities were evaluated on leverage AND feasibility
  • Selected opportunities match available resources
  • Sustainability of opportunity was considered