Compounding

Anyone who has ever taken an economics class or attended a Dave Ramsey seminar will tell you that compounding is an extremely powerful tool for multiplying the value of your efforts. Very simply, compounding is the cumulative effect of taking the outcome of your effort and reinvesting it back in as input. The result is the yield of your effort creates its own yield, which in turn creates its own yield… the cycle builds upon itself ad infinitum. Cool, right?

But like all strategic tools, the compounding phenomenon can work both to the benefit and detriment of your organization. A lesson that most companies (and people) learn the hard way.

A quick analogy.

Right now, there is infection in five of my toes. I’ll spare you the details but know this: IT HURTS. I’m a pitiful sight right now, wincing and grimacing as I hobble around. But it didn’t start out like this. It started with my winter boots which, though functioning correctly, have a narrow “toe box” which caused my toes to rub against the inside of the boot.

Now add to that the fact that it’s winter and I wear the boots for extended period, the rubbing starts to become intense. Add to that the fact that (as a diabetic) I have poor circulation to my feet. Now my toes are being irritated and don’t receive a sufficient supply of “clean” blood to keep them healthy. What happens? Infection sets in and then spreads to the toes that have been weakened by the compounding effect of my constricting boots and lazy pancreas.

What started as a minor irritation quickly became a near-debilitating condition.

How small problems can compound in an organization.

Now imagine a similar situation in your organization.

One member of your team (let’s call him ‘Tony’) is being slightly but continually irritated by a tool that isn’t quite what he needs. Annoying but no big deal, he’s team player and times are tight so he’s making due with the best he can.

Now imagine that some other part of your organization, say Human Resources, starts having problems. It doesn’t have to completely fail to function, like my pancreas has; it could be as minor as falling behind or forgetting to complete something on time. But as a result, Tony doesn’t get his pay check when he’s supposed to.

Now Tony is being worn down by a minor inconvenience and the flow of resources that he needs has been disrupted. As anyone who has ever had to deal with a missing pay check will tell you, Tony’s condition has just gotten a lot worse. The stress of his inefficient work environment is now compounded by the disruption that flows from another part of the organization. Tony’s pissed. Infection has set in.

Let unchecked, Tony will now start to have a detriment effect on those around him, compounding any difficulties they’re enduring. This is how the infection spreads. Suddenly, what started as a minor problem has compounded to a critical issue that will take a lot of attention to heal.

Don’t sweat the small stuff.

As entrepreneurs, leaders, and managers, you’re accustomed to working in less that perfect conditions. And in many regards inefficiency will always hinder our efforts. In order to accomplish our strategic goals we’ve learned not to sweat the small stuff.

But that doesn’t mean that we can ignore the small stuff completely. You need to pay attention to what’s happening around you. And it is especially important to keep a pulse on the “health” of your team and make sure that you are creating the right conditions for them to succeed in their positions. Because if you don’t, something minor can quickly compound into something major and hobble your efforts.

Don’t sweat the small stuff. But don’t ignore it either.