I’m writing on a Monday, and it is one of those Mondays. I feel tired after waking up early to start my day and my week. Not only do I feel fatigued, but I’m also not feeling motivated. Writing isn’t easy today.
It is at times like this that I am encouraged by compound interest. I realize it may sound silly to read that I draw inspiration from something as bland as interest, yet compound interest reminds me of how consistently adding more (money, effort, knowledge), regardless of whatever else is happening, will result in exponential growth.
Because of compound interest, adding a dollar this year will be worth exponentially more when you take it out at the end. The longer the period during which the interest compounds, the bigger the return. If you have $100 and you earn $3 interest on that original investment, you’ll have $103 at the end of the year. If you reinvest that $103, you are now earning interest over your original investment plus the interest you already made. If you then invest even more money, say $20, you are increasing your principal and helping your original investment snowball.
Compound interest is a powerful force, but it only works if it is consistent. That additional dollar (work, book, task) you can add to your savings may have taken great effort, and you may have been on the verge of quitting, but if you commit to it, you will be able to benefit from the effects of compound interest. It is in those moments, the times where we want to stop being constant, that the rubber hits the road. The key is to continue, not to stop. Only then will the benefits accumulate, and we will reap the rewards for which we worked so hard.
The Power of Compound Interest
There is a story related to how the game of chess was invented. When an Indian king received the game, he was so impressed that he asked its inventor how he wanted to be compensated. The inventor replied that he wanted one grain of rice on the first square, then double that on the second square, and double again on the third square, until the entire chessboard was filled. The king asked his treasurer to fulfill the request. Unfortunately, the amount was rapidly snowballing, and there was not enough rice in the kingdom to reward the inventor. To give you a sense of the progression, in the first square, he would have received one grain, in the second two, in the third four, and so on. In the tenth, it was up to 512, but by the 20th square, it was 524,288, and in the 30th, 536,870,912, and in the 40th, it was well above 549 billion grains of rice.
It is hard to grasp the effects of doubling, but it is mathematically sound. There is a limit to how much something can double: we eventually run out of rice, space, time, money…, yet the effect of exponential growth shows us how much is possible.
Although compound interest does not map one-to-one to investing in your business, it does give us an idea of the power of growth if we consistently add more resources to a company. Say you started using only spreadsheets for your accounting, and you then decided to invest in full ERP software. Even if the software has a cost, if you made a wise investment, you’ll have a net return on it because you are now able to do more, e.g., handle more projects, expand, and save costs and time. That investment you made will pay off year after year. So, if you were able to take on one more project in the first year after implementation, the returns you made from that project can be reinvested. Now, with the system and the new returns, you can maybe take on two projects.
Part of the work we do, as managers, is to be constantly on the lookout for and developing new and innovative solutions. The other piece of the work is constant incremental progress. The constant refining and investing will add up to growth. The key is to continue developing and not to stop. The improvements can take on many forms:
Improving workflows within existing software so that they are quicker and more efficient
Producing metrics that help you better manage your company and constantly refining them so that they are as simple and effective as possible
Streamlining processes if they are too cumbersome
Improving existing and adding new products to your line of offerings
If, as managers and leaders, we take the perspective of compound growth, we will be able to see growth from a different perspective. When we can add in a new development or product that boosts the company, it will be like adding that additional $20 to the $100 you already saved. From there, you can keep adding bit by bit by improving your systems, the types of products you offer, and your marketing tactics. Everything counts because it will improve your overall platform and will help the company become consistently better.
Even though I struggled with finding motivation on this Monday, I knew that if I put one more piece of rice in front of me today, I would eventually see the results I envisioned.