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August 01, 2012

Working Smart

The Compound Effect

by Darren Hardy, Publisher and Founding Editor of SUCCESS magazine


Click here to order the Direct Selling News issue in which this article appeared.


Recently, DSN interviewed SUCCESS Publisher Darren Hardy regarding the concepts expressed in his book, The Compound Effect. For DSN readers who lead and work in the area of personal development and training of the salesforce, the concepts confront the basic causes of salesforce attrition rates and provide insight into how they might be improved. The following is an overview of the concepts explored by Hardy.

The Compound Effect in Action

The Compound EffectThe Compound Effect is the principle of reaping huge rewards from a series of small, smart choices. What’s most interesting about this process to me is that, even though the results are massive, the steps, in the moment, don’t feel significant. Whether you’re using this strategy for improving your health, relationships, finances, or anything else for that matter, the changes are so subtle, they’re almost imperceptible. These small changes offer little or no immediate result, no big win, no obvious I-told-you so payoff. So why bother? Most people get tripped up by the simplicity of the Compound Effect. For instance, they quit after the eighth day of running because they’re still overweight. Or, they stop practicing the piano after six months because they haven’t mastered anything other than “Chopsticks.” Or, they stop making contributions to their IRA after a few years because they could use the cash—and it doesn’t seem to be adding up to much anyway. What they don’t realize is that these small, seemingly insignificant steps completed consistently over time will create a radical difference. Let me give you a few detailed examples.


Small, Smart Choices + Consistency + Time =
RADICAL DIFFERENCE


The Magic Penny

If you were given a choice between taking $3 million in cash this very instant and a single penny that doubles in value every day for 31 days, which would you choose? If you’ve heard this before, you know the penny gambit is the choice you should make—you know it’s the course that will lead to greater wealth. Yet why is it so hard to believe choosing the penny will result in more money in the end? Because it takes so much longer to see the payoff.

Let’s take a closer look. Let’s say you take the cold, hard cash and your friend goes the penny route. On Day Five, your friend has 16 cents. You, however, have $3 million. On Day 10, it’s $5.12 versus your big bucks. How do you think your friend is feeling about her decision? You’re spending your millions, enjoying the heck out of it, and loving your choice. After 20 full days, with only 11 days left, Penny Lane has only $5,243. How is she feeling about herself at this point? For all her sacrifice and positive behavior, she has barely more than $5,000. You, however, have $3 million.

Then the invisible magic of the Compound Effect starts to become visible. The same small mathematical growth improvement each day makes the compounded penny worth $10,737,418.24 on Day 31, more than three times your $3 million. In this example we see why consistency over time is so important. On Day 29, you’ve got your $3 million; Penny Lane has around $2.7 million. It isn’t until Day 30 of this 31-day race that she pulls ahead, with $5.3 million. And it isn’t until the very last day of this month long ultra-marathon that your friend blows you out of the water; she ends up with $10,737,418.24 to your $3 million. Very few things are as impressive as the “magic” of compounding pennies. Amazingly, this “force” is equally powerful in every area of your life. Here’s another example…

Three Friends

Let’s take three buddies who all grew up together. They live in the same neighborhood, with very similar sensibilities. Each makes around $50,000 a year. They’re all married and have average health and body weight, plus a little bit of that dreaded “marriage flab.” Friend No. 1, let’s call him Larry, plods along doing as he’s always done. He’s happy, or so he thinks, but complains occasionally that nothing ever changes. Friend No. 2, Scott, starts making some small, seemingly inconsequential, positive changes. He begins reading 10 pages of a good book per day and listening to 30 minutes of something instructional or inspirational on his commute to work. Scott wants to see changes in his life, but doesn’t want to make a fuss over it. He recently read an interview with Dr. Mehmet Oz in SUCCESS magazine and chose one idea from the article to implement in his life: He’s going to cut 125 calories from his diet every day. No big deal. We’re talking maybe a cup of cereal less, trading that can of soda for a bottle of seltzer, switching from mayo to mustard on his sandwich. He’s also started walking a couple thousand extra steps per day (less than a mile). No grand acts of bravery or effort. Stuff anyone could do. But Scott is determined to stick with these choices, knowing that even though they’re simple, he could also easily be tempted to abandon them.

Friend No. 3, Brad, makes a few poor choices. He recently bought a new big-screen TV so he can watch more of his favorite programs. He’s been trying out the recipes he’s seen on the Food Channel—the cheesy casseroles and desserts are his favorites. Oh, and he installed a bar in his family room and added one alcoholic drink per week to his diet. Nothing crazy; Brad just wants to have a little more fun.

At the end of five months, no perceivable differences exist among Larry, Scott, or Brad. Scott continues to read a little bit every night and listen to audios during his commute; Brad is “enjoying” life and doing less. Larry keeps doing as he always has. Even though each man has his own pattern of behavior, five months isn’t long enough to see any real decline or improvement in their situations. In fact, if you charted the three men’s weights, you’d see a rounding error of zero. They’d look exactly equal. At the end of 10 months, we still can’t see noticeable changes in any of their lives. It’s not until we get to the end of the 18th month that the slightest differences are measurable in these three friends’ appearances. But at about month 25, we start seeing really measurable, visible differences. At month 27, we see an expansive difference. And, by month 31, the change is startling. Brad is now fat while Scott is trim. By simply cutting 125 calories a day, in 31 months, Scott has lost 33 pounds!

Brad ate only 125 more calories more a day in that same time frame, and gained 33.5 pounds. Now he weighs 67 pounds more than Scott! But the differences are more significant than weight. Scott’s invested almost 1,000 hours reading good books and listening to self-improvement audios; by putting his newly gained knowledge into practice, he’s earned a promotion and a raise. Best of all, his marriage is thriving. Brad? He’s unhappy at work, and his marriage is on the rocks. And Larry? Larry is pretty much exactly where he was two and half years ago, except now he’s a little more bitter about it.

The phenomenal power of the Compound Effect is that simple. The difference between people who employ the Compound Effect for their benefit compared to their peers who allow the same effect to work against them is almost inconceivable. It looks miraculous! Like magic or quantum leaps. After 31 months (or 31 years), the person who uses the positive nature of the Compound Effect appears to be an “overnight success.” In reality, his or her profound success was the result of small, smart choices, completed consistently over time.

The beauty of the Compound Effect is in its simplicity. The behaviors all along the way are exactly the same, but the magic of the Compound Effect eventually kicks in to bring massive differences in results. The Compound Effect is predictable and measurable—that’s great news! Isn’t it comforting to know you only need to take a series of tiny steps, consistently, over time, to radically improve your life? Doesn’t that sound easier than mustering up some grand show of bravery and heroic strength, only to wear yourself out and have to drum up all that energy again at a later date for another try (which will likely be unsuccessful)? I’m exhausted just thinking about it. But that’s what people do. We’ve been conditioned by society to believe in the effectiveness of a great display of massive effort.

Success, Old School

The most challenging aspect of the Compound Effect is that we have to keep working away for a while, consistently and efficiently, before we can begin to see the payoff. Our grandparents knew this, though they didn’t spend their evenings glued to the TV watching infomercials about how to have thin thighs in 30 days or a real estate kingdom in six months. They knew the secret was hard work, discipline, and good habits.

As a nation, our entire populace seems to have lost appreciation for the value of a strong work ethic. We’ve had two, if not three, generations of Americans who have known great prosperity, wealth, and ease. Our expectations of what it really takes to create lasting success—things like grit, hard work, and fortitude—aren’t alluring, and thus have been mostly forgotten. We’ve lost respect for the strife and struggle of our forefathers.

The massive effort they put forth instilled discipline, chiseled their character, and stoked the spirit to brave new frontiers. The truth is, complacency has impacted all great empires, including, but not limited to, the Egyptians, Greeks, Romans, Spanish, Portuguese, French, and English. Why? Because nothing fails like success. Once-dominant empires have failed for this very reason. People get to a certain level of success and get too comfortable. Having experienced extended periods of prosperity, health, and wealth, we become complacent. We stop doing what we did to get us there. We become like the frog in the boiling water that doesn’t jump to his freedom because the warming is so incremental and insidious that he doesn’t notice he’s getting cooked! If we want to succeed, we need to recover our grandparents’ work ethic.

Microwave Mentality

Understanding the Compound Effect will rid you of “insta-results” expectation—the belief success should be as fast as your fast food, your one-hour glasses, your 30-minute photo processing, your overnight mail, your microwave eggs, your instant hot water and text messaging. Enough, okay?

Promise yourself that you’re going to let go once and for all of your lottery-winner expectations because, let’s face it, you only hear stories about the one winner, not the millions of losers. That person you see jumping up and down in front of the Vegas slot machine or at the Santa Anita horse track doesn’t reveal the hundreds of times that same person lost. If we go back to our mathematical chance of a positive result, again, we have a rounding error of zero—as in, you have about zero chance of winning.

Harvard psychologist Daniel Gilbert, author of Stumbling on Happiness, says that if we gave lottery losers each 30 seconds on TV to announce not, “I won!” but “I lost,” it would take almost nine years to get through the losers of a single drawing! When you understand how the Compound Effect works, you won’t pine for quick fixes or silver bullets. Don’t try to fool yourself into believing that a mega-successful athlete didn’t live through regular bone-crushing drills and thousands of hours of practice. He got up early to practice—and kept practicing long after all others had stopped. He faced the sheer agony and frustration of the failure, loneliness, hard work, and disappointment it took to become No. 1.

By the end of this book, or even before, I want you to know in your bones that your only path to success is through a continuum of mundane, unsexy, unexciting, and sometimes difficult daily disciplines compounded over time. Know, too, that the results, the life, and the lifestyle of your dreams can be yours when you put the Compound Effect to work for you.

Summary Action Steps

  • Write out a few excuses you might be clinging to (e.g., not smart enough, no experience, wrong upbringing, don’t have the education, etc.). Decide to make up in hard work and personal development to out-compete anyone—including your old self.

  • Be Scott—Write out the half-dozen small, seemingly inconsequential steps you can take every day that can take your life in a completely new and positive direction.

  • Don’t be Brad—Write down the small, seemingly inconsequential actions you can stop doing that might be compounding your results downward.

  • List a few areas, skills, or outcomes where you have been most successful in the past. Consider whether you could be taking those for granted and are not continuing to improve, and are therefore in jeopardy of having that complacency lead to future failure.

Darren HardyDarren Hardy is the Publisher and Founding Editor of SUCCESS magazine, as well as a New York Times best-selling author. He is an advisor and mentor to many top CEOs, and is a contemporary thought leader in the field of personal development. Learn more at www.DarrenHardy.com. Copies of the book can be ordered at www.TheCompoundEffect.com.