In just a few weeks, we will be wishing each other a happy new year. As leaders, we will look back on the year past and create a new set of resolutions for the year ahead. Many leaders will ask themselves whether it will be another year of doing more of the same — the treadmill effect — running very fast but staying in the same place.
But as we jettison the old year and thrust ourselves into the new one, we must ask ourselves whether we are tapping into the power of compounding.
This is of course a powerful concept in the field of wealth creation. Author Morgan Housel explains: “As I write this Warren Buffet’s net worth is $84.5 billion. Of that $84.2 billion was accumulated after his 50 th birthday. $81.5 billion came after he qualified for social security, in his mid-60s.”
Buffet has been a master of the art of compounding — beginning early — when he was 10 and staying consistent through the decades. To drive the point home, Housel poses the question — what if Buffet had started his investing journey at 30 with $25,000 while still enjoying the same returns and then retired at 60?
He would have ended up with only $11.9 million — 99.9 per cent less than what he actually ended up with! Does the power of compounding apply in leadership? Can we compound our experiences as leaders and build wealth in our leadership capital? Let’s explore some areas we could do this in.
If we aspire to be leaders, we must be learning leaders. Most of us get this. We spend time reading, we spend time attending seminars and conferences, listening to podcasts, and taking up tough projects or assignments that will help us grow. But that’s just the input part. How do we compound our learning?
Personally, I’ve found that we must take the trouble to record, to reflect, apply and review. Without these, as the old saying about learning in the classroom goes: “From the lips of the teacher through the ears of the student without engaging the minds of either.” Studies have shown that with most training sessions, participants typically retain only about 10 per cent of what they hear through classroom lectures.
This goes up to about two-thirds when they actually apply their learning in their real work environment. In our TalentEase programmes, we follow the ARIA approach — Awareness, Reflection, Insight and Action. Without reflection, most of our received knowledge through training or otherwise ends up as wasted effort and time. And only if the reflection leads to insight and action has the learning truly been absorbed.
Peter Drucker strongly recommended documenting every big decision we make — outlining our rationale, why we chose a particular path and then revisiting our notes later to examine how our decision turned out. Did we choose right? Did our logic pan out the way we’d anticipated? He pushes this as perhaps the best way to arrive at our strengths — what we’re good at and what our blind spots are. Again, doing this allows us to compound our self-awareness and our learning.
One of the reasons we need to compound learning is because the context we operate changes. We may be tempted to relentlessly pursue strategies that we have mastered and that have served us and our organisations well. But when the context has changed, the same master plan can trip us up. That’s where compounding our learning can help. It can help us connect the dots, it can help us spot quagmires, it can prevent us from being arrogant with perceived expertise.
One of the places where we least tap the power of compounding is in our relationships- personal and professional. Often, we rarely make the time for the relationships we claim to value the most. We sign up for the Musk-code — work the twenty-hour days and then are surprised when divorce springs up or children no longer wish to spend time with us.
At work we often spend more time in relationships focused purely on career growth and neglect ones that challenge us to face the truth about ourselves. Our relationship-building ends up being a little mercenary. But research has shown that when we invest in relationships where we sometimes have nothing to gain, we end up richer.
In an interview with HBR, Wharton professor Cassie Mogilner talked about one of the secrets of gaining more time — giving some away. Her research showed that people who gave time away to help someone, to spend on someone ended up feeling like they had more time on their hands.
“The results show that giving your time to others can make you feel more ‘time affluent’ and less time-constrained than wasting your time, spending it on yourself, or even getting a windfall of free time. In the first two experiments, my colleagues and I found that people who wrote notes to sick children or devoted a bit of time on a Saturday morning to helping another person were more likely than the other study subjects to say their futures felt ‘infinite’.”
Making time for relationships, especially relationships that have no obvious gain for us end up compounding dramatically in our lives.
Few things help a leader more than the compounding value of the habits she follows. Habits are our shortcut to living. They help us get past the multitude of small choices we would otherwise need to make. But they also form us — in some ways we could even say, we are our habits. So, it pays to cultivate the right ones and by their very repetitive nature, they compound.
AngelList Founder Naval Ravikant writes about his reading habit: “The reality is, I don’t actually read much compared to what people think. I probably read for one to two hours a day. That puts me in the top .00001 percent. I think that alone accounts for any material success I’ve had in my life and any intelligence I might have. Real people don’t read for an hour a day. Real people, I think, read a minute a day or less. Making it an actual habit is the most important thing.”
Absorb the enormity of that reflection. He credits his daily habit of reading for both his success and his intelligence — just one compounded habit.
In my own life I can credit my daily habit of meditation for creating enormous compounding benefits in my personal and professional life. One of the biggest has been the gift of the pause. I find that I suspend judgement, hold back an immediate response, bite my tongue for just those few seconds longer to allow reflection to rein in a poor decision or a bad choice of words. Will Durant drives home the power of compounding in habits: “We are what we repeatedly do. Excellence then is not an act but a habit.”
Unfortunately, the power of compounding also applies in the reverse direction. If we miss out on opportunities to learn, allow neglect to eat away at our relationships, and adopt poor habits — these, too, compound and make us less effective as people and as leaders.
“The power of compounding also applies in the reverse direction. If we miss out on opportunities to learn, allow neglect to eat away at our relationships, and adopt poor habits — these, too, compound and make us less effective as people and as leaders. ”
As we approach this new year, we should examine our compounding leadership balance sheet. To copy-paste from this year to the next will leave us poorer, but if we can compound our learning, our relationships, and our habits we could create a transformative year for ourselves and those we lead.