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The Compound Effect: Most Powerful Principle In The World

The Compound Effect: Most Powerful Principle In The World
The Compound Effect: Most Powerful Principle In The World

A few days back we were discussing why consistency is the key to business success.

We mentioned that without consistency, there can be no compound effect.

The compound effect is simply the principle where small consistencies eventually grow into massive results.

Eating enough calories per day for a few months or years will eventually result in massive weight gain.

Spending 20 minutes in the gym every day will eventually lead to a very strong and lean body.

Writing every day on a blog will eventually lead to you becoming a great or better writer with a large following.

The compound effect, whether you believe it or not, is the most powerful principle in the world.

It's the reason a small cancer cell eventually becomes this deadly thing that invades people's bodies, leaving both them and doctors powerless against it.

One small cell multiplies into more cells, the other cells start to multiply into more cells and the process repeats itself until they've dominated most cells in the human body.

At that point, when you find out you've got cancer, it's almost too late.

How about a slightly more neutral example?

We all know what the flywheel is.

There's this amazing passage from the book, 'Good To Great' that I found in an article recently.

I wanted to share it in here with you today.

“Picture a huge, heavy flywheel—a massive metal disk mounted horizontally on an axle, about 30 feet in diameter, 2 feet thick, and weighing about 5,000 pounds. Now imagine that your task is to get the flywheel rotating on the axle as fast and long as possible.

“Pushing with great effort, you get the flywheel to inch forward, moving almost imperceptibly at first. You keep pushing and, after two or three hours of persistent effort, you get the flywheel to complete one entire turn.

“You keep pushing, and the flywheel begins to move a bit faster, and with continued great effort, you move it around a second rotation. You keep pushing in a consistent direction.  Three turns … four … five … six … the flywheel builds up speed … seven … eight … you keep pushing … nine … ten … it builds momentum … eleven … twelve … moving faster with each turn … twenty … thirty … fifty … a hundred.

“Then, at some point—breakthrough!  The momentum of the thing kicks in your favor, hurling the flywheel forward, turn after turn … whoosh! … its own heavy weight working for you. You’re pushing no harder than during the first rotation, but the flywheel goes faster and faster.  Each turn of the flywheel builds upon work done earlier, compounding your investment of effort. A thousand times faster, then ten thousand, then a hundred thousand. The huge heavy disk flies forward, with almost unstoppable momentum.

“…There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution. Good to great comes about by a cumulative process—step by step, action by action, decision by decision, turn by turn of the flywheel—that adds up to sustained and spectacular results.”

This passage explains the power of the compound effect.

A giant wheel over 5000 pounds in weight seems impossible to move, let alone move at staggering speed.

Pushing and pushing, it feels like nothing is happening.

You keep going, and all along, the effort exerted is being stored, building up until it's needed.

As the effort builds up, you notice incrimental changes in the speed of the flywheel.

All of a sudden it's spinning 'with almost unstoppable momentum.'

All of this comes from the simple act of repeating an action, consistently, over and over.

Whether you knew it or not, the compounding effect has been operating our lives since we were born.

Small habits that we start to do at a young age build up over time and compound into habits that we carry on for a long time.

One that I'm slightly ashamed to mention is sucking my thumb.

It all started when I was a child, sucking my thumb was normal.

As I grew older, the habit seemed to stick and almost nothing would make me stop it.

I got to the age of 6, 7, and even 8 (I think) until I finally decided to stop.

See, the power of the compounding effect requires two things to work

  • Time
  • Consistency

It's why things such as investing eventually end up making their investor's so much money and wealth.

Let's say you start with $1000 and invest this $100 into an index with a rate of return of 10% (similar to the S&P500).

Every single month, you add on $500 and keep this going for the next 30 years.

The first year, you'll have made $7420- a total of $420 on your investment.

The fifth year, you'd have made $40,196- almost $10,000 on top of your own investment.

Fifteen years in, you'd have made $204,988. This is around $105,000 more than you'd have invested yourself. 

Finally, 30 years later since your first investment, you'd have a whopping total of $1,057,095.

If you never were one, I guess now you're techincally a millionaire!

Steady wealth is simple to build, you just invest incrementally into something with a steady rate of return.

Is the compound effect only positive?

The Compound Effect: Most Powerful Principle In The World

See, the compound effect can work in both ways, however.

You might be someone who consistently does bad things.

It may have all started back in school - you didn't do your homework and so you got into trouble.

You then keep repeating your bad behaviour over and over.

Your teachers and parents call you a 'bad child' and so this sinks deep into your subconcious mind and you start living that sort of life.

The self fulfilling prophecy kicks in and all of a sudden, everything you do is tied to your 'bad behaviour.'

Something that started so small - not doing your homework, compound overtime to become something extremely serious.

You start getting mean to your parents, peers, and teachers.

You start to get into fights in school.

You find a group that fit your behaviour and start to hang out with them.

A few years down the line, all of the menace you had caused built-up, compounded and you've just killed a person.

Your life will never be the same again.

The same holds true for anything negative that you do.

Imagine that you've got dreams of being a successful entrepreneur.

You start to work on a great business idea, but realise that it's all a lot more difficult and challenging than you thought initially.

The stress and overthinking makes you look for a solution to calm your nerves.

You come across smoking and even have friends who do it.

All of a sudden, you start to smoke everytime you feel nervous.

This consistent cue of nervousness and anxiety means that you start to smoke whenever you feel this way.

It becomes a pack a week.

Then it becomes a few packs a week.

All of a sudden, you forget about your dreams and aspirations and start to go out with friends to smoke every day.

Something so promising, led to a walk down the wrong path.

The negative habit of smoking when you feel anxious completely overwhelmed you.

You're no longer healthy, and your life span decreases drastically. 

That is the power of the compound effect.

How do you leverage the compound effect for good?

The Compound Effect: Most Powerful Principle In The World

As I mentioned earlier, the compound effect requires two things:

  • Time
  • Consistency

However, in the book 'The Compound Effect,' author Darren Hardy said that for the compound effect to take place, you also need small choices.

A small choice, that you make consistently, over a long period of time leads to the compound effect.

Now we've got this formula, it's simple to undertand how to leverage this compound effect.

Essentially, a small choice made consistently, is also known as a habit.

So we can simplify the formula down into: habit + time = compound effect.

You need a positive habit that you do for a long period of time in order to experience the power of the compound effect.

Here are the 4 simple steps to making this happen.

What's the goal?

What are you looking to achieve? Is it gaining weight?

Is it building a business?

Is it sleeping earlier and waking up earlier?

Is it making sure that you and your family are good after retirement?

When you've figured out what change you want to make in your life, you're able to easily outline what it is that you need to do to leverage the compound effect in your favour.

You may want to use some of the lessons from my article about SMART goals in order to help you with setting your goal here.

However, you're only looking for a transformation here. It's less of a goal and more of a transformation that you want to see.

Figure out the goal/transformation, and the other steps will fall into place

What choice must be made?

Now we've figured out your goal or transformation, you'll want to outline the small choices that you must make in order to put the compound effect into action.

Let's use the example of building a business.

What actions or choices must you start making to build a business?

The simplest action is just taking action, right?

The choice you must make is investing, let's say, 30 minutes to an hour a day on learning and implementing what you've learnt.

There may be other barriers that you want to overcome that require choices to make.

When I started working on a business, my biggest problem was gaming.

Most of my time was taken up by gaming.

I somehow suddenly made the concious decision to stop gaming, however, for many people, it will not be this easy.

Your choice can now be get off of [current bad choice] 30 minutes earlier and invest 30 minutes - 1 hour on learning and implementing.

You don't want this part to be too big because the larger the choice is, the less automatic it would be and the harder it is to stay consistent.

Master consistency

Consistency is extremely important.

Without consistency, it's difficult to make anything work in the long run.

Imagine you're trying to lose weight.

In order to do this, you'll need to build a super healthy diet and work out consistently ever single week.

If you're eating healthy once a week, or bi-weekly then doing the same with working out, you can never expect to lose weight. 

If you're looking to build a business, and you only work on it once or twice a week whilst partying or going out with friends every other day, then you're not going to be successful.

To be consistent, you must first understand your goal/transformation then believe you're there already.

This was already all spoken about at length in my article on consistency.

Going back to the weight loss example, you must first understand and believe you've lost the weight and that you're a healthy, disciplined person.

Only then will your actions truly align with your goals and transformation.

Without consistency, it's impossible to get the compound effect going.

Give it time

Finally, it's all about time.

The book I'm currently reading,'Atomic Habits' (which I highly recommend), is all about small, tiny changes over time.

Time is a constant that is crucial for many things to happen.

Time built cities, built countries, built societies.

Time leads to growth, leads to maturity, leads to dramatic shifts.

For your goal/transformation to truly materialise, you must be willing to give it time.

This is why most people never see success to the levels they'd like to see.

They think that to make something great happen, they just do it a few times.

It's extremely hard to stay consistent for a long period of time.

That's why the smaller the choice is, the easier it is to stick to it.

Finally, since the choice and consistency is simply a habit, I recommend reading this article on the easiest way to build habits and make them stick.

Did you learn something new from this article?

Let me know your thoughts and comments below.

Till next time,

Mohamad


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