Law of compounding – for real life improvement

I read – maybe 10 years back – Delivering Happiness by the CEO of Zappos – Tony Hsieh. I don’t quite remember everything in the book except that it was the journey of Zappos. However there is one statement from the book which Hsieh makes, which has remained with me since then, if you can improve even 1% everyday, imagine the improvement you will have at the end of the year – 367%. However inspite of having read it and also put it on a board where I could see it everyday, I have not improved 3670% in the last 10 years. The idea is simple I understand it but I still don’t go about achieving it.

The Japanese have a incremental improvement method called Kaizen which is about bringing about small incremental improvements continuously resulting in massive improvements over a period of time.

Both seem to be very simple concepts but we don’t end up following them. If you have been following my blog for sometime you would have noticed that as I am getting more experienced at writing things I am also questioning things about how I can be improving myself. Right now I am working on improving my reading capabilities. I have an agenda to read at least 3 books every week, consistently over the next few months, inspite of all the extended working hours we are having due to the lockdown. I want to check if I can improve my reading, which means I gather more knowledge, which then I try to put into action and therefore improve myself on a regular basis.

Yesterday however I was watching a YouTube video of Dan Sullivan of Strategic coach and he explained a very simple concept because of which I may not be achieving our goals for real life improvement. His logic is that there are no impossible goals, there are only impossible timelines. And because we give impossible timelines to ourselves, we end up messing up on achieving our goals. In case you are interested you can watch the video here.

As per him if we were to give ourselves long enough timelines, then our brain will not put barriers. The timelines he talks about doing a 10X is 25 years and breaks it down into quarters. So in 25 years there will be 100 quarters. If we were to use our compounding equation S=P*(1+r/100)^n. So if we put P=X and S=10X and “n” =100 then “r” turns out to be just 2.5% growth per quarter.

Is it feasible to improve 2.5% per quarter or less than 1% per month. Should be possible. If we were to break down our improvement points into clear bite sized goals then 1% per month should be very feasible and 10X in 10 years should also be feasible.

The reason this compounding works is because as a human being when you improve the first time, the next improvement is over the previous improvement and this cycle can continue forever. This is exactly how compounding works on your money and this how compounding works in real life as well. However our brain is conditioned to think in terms of linear activities. It is just not capable of comprehending non-linear equations like compounding and therefore whether it comes to money or self improvement our brain plays games with us.

Its one of those laws which are universal in nature and should apply to me as well. If I can improve by more than 1% every month in different areas of my life, based on the knowledge I acquire by reading the books and taking action, I should be able to grow. Let me see how this goes. Just to share the progress in the last 3weeks I have been able to complete 8 books. All non fiction books. These include Crushing It by Gary Vaynerchuk, Bold by Peter Diamandis, Attackers Advantage by Ram Charan, Triggers By Marshall Goldsmith etc. All these books are quite dense, as you will see in the picture, but I am trying to keep to my target.

Let me know if you also see Compounding in other areas of your life. I will be very interested in hearing your story.

Till next time.

Carpe Diem!!!

Compounding to get better in life

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I was having a discussion with my marketing manager the other day on the plans for the new financial year. How her team was expected to meet their targets, how her team was to help get the sales team to be producing results and how my overall team of different functions would get to double their turnover.

The moment you think of doubling something, it throws up resistance in the mind of everyone involved.

JAY ABRAHAM has a very simple equation for sales – which uses the concept of compounding – Total Value of sales = number of new clients*number of times existing clients buy*value of sales – if you need to double the total value of sales you don’t need to increase everything 100% – if you just work on increasing each of the three parts of the equation by about 30% – the total growth is double.  If you don’t believe just multiply 1.3*1.3*1.3 = 2.197.  For a further explanation on this you could read his book “Getting Everything you can from All you’ve got” . Its an awesome book on scaling a business.

Now for someone even increasing each item in the above equation by 30% could seem like a lot.  But each item above is made up of multiple processes.  Like getting new clients could involve improving the database by 10%, improving the quality of calling by 10% and improving the quality of proposals by 10%.  Just improving each of these processes by only 10% will increase the process of getting new clients by 30%.  You can go further in breaking down each process.  the process of improving the database could further be broken down into attending 5% more events and in each customer meeting try to build connections with 5% more people and so on. Once you can start looking at each process minutely and keep improving the task of doubling any item is relatively very easy.

Verne Harnish in his book, Mastering the Rockefeller Habits talks about how Michael Dell would continuously want to monitor issues in processes that were being followed in his company because he believed that once he got those eliminated the overall benefit to the organisation in the long run would be enormous.

Japanese have a method called “kaizen” which is to look for continuously doing small improvements, in the process or in the product.  The logic is that if you were to do very small improvements continuously you could compound to have very large benefits over a period of time.  If you were to improve just 1% every day of the year, by the end of the year you would be 36.5 times better than you were at the start of the year.  Not 36.5% better but 3650% better.  That’s the power of compounding.

Compounding can go down to each level and still the same rules will apply.  Its fractal.  Like 80/20.  In every 80/20 there is an 80/20 and in every second level of 80/20 there is generally a third level of 80/20 and so on.

The same law will keep applying.  And its so simple.

But don’t get fooled by its simplicity.  What is simple may not be easy to do or may not be easy to want to do.

I have started getting a very strong belief as I get older that people don’t believe in things which are simple. A lot of times while I am talking about this, I am also guilty of getting carried away with shiny objects which look complex.  People like to address tasks which are complex, because simplicity seems too good to be true. Or maybe people don’t get the thrill when they do simple things.  May be it doesn’t seem heroic.

To Simplicity…..

…..use the content from Verne Harish on page 72 & 73…..also use Jay Abraham’s equation of 3 ways of increasing  something….