To lead by example means to demonstrate behavior rather than just saying something should be done. For example, if someone in the hallway at school drops their books, to lead by example would be to help pick up the books for that person. Then others will see what you are doing and the next time they see someone in the hall that has dropped their books they will pick help.
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To "lead by example" is to lead others by your actions, not your words. Rather than intentionally trying to lead someone intentionally, simply do your best and when others notice your good work, they will naturally follow.