A couple of blog posts ago, I discussed one of my primary tenets: making things 1% better every day. In this post, I’m going to drive home the key ingredient to this tenet: compound interest.
Compound interest isn’t just a concept in finance. The essentials of compound interest boil down to this: the total grows over time, rather than just the principal. Now, when it comes to finance, that is certainly where the concept is easiest to understand: When I have a beginning amount of money (principal), I earn interest on that principal; when it’s compounded, that means that later on I’ll earn interest on the principal, plus all my previous interest. This creates, in theory, exponential growth.
But this concept exists in other places as well. Say my company sells to a customer, and then that customer leaves a good review that other people see. That causes more people to buy with the company, and potentially leave good reviews. The principal (initial sell) is being compounded by the initial interest (customer’s review).
Or, if I sell a book. The first book (principal) might not do well, but later books should showcase an increase in writing and marketing ability (interest), thus causing me to sell future books easier. Working at something over time improves your skills, and causes things to get easier over time. This is exponential growth.
Of course, it doesn’t always work like this. There are points where your skills will grow exponentially, then you’ll hit a roadblock and fall off for a bit before returning to growth. However, these roadblocks tend to be an exception rather than the rule; fixed points followed by long swaths of growth.
The most important thing about this concept of compound interest is that logic follows that small, incremental changes will lead to the highest impact. This is because a) these incremental changes follow the structure of interest, and b) incremental changes help shortcut the roadblocks that might otherwise occur if you’re working on a project intensively rather than consistently.
And, with that key concept in mind, we return to making things 1% better, every day. Because small gains now, mean massive gains over the course of life.
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