Compounding for Leadership

Unlike trig or calculus, compounding (or compound interest) can be applied to daily life. And Albert Einstein coined it the “greatest mathematical discovery of all time” so it must be awesome.

Compounding can not only be applied to daily life—our personal finances—but it can also be applied to leadership.

Let’s look at it from the “traditional” perspective first. Say at 25 years of age, you managed to save $15,000 and you did the responsible thing—you invested that hard-earned money. You locked in an interest rate of 5.5 percent. To keep it simple, let’s say that interest rate compounded annually. Now, your spendthrift pal didn’t save his $15,000 (at the same compounding interest rate) until he was 35.

When you turn 50, you’ll have earned more than $57,000—just by sitting back and letting the money grow. Your friend will have earned less than $34,000. It’s a striking difference, but even more striking is the actual interest that is earned; simply by investing a decade earlier, you’ll have more than $42,000 in interest, while your friend has around $18,000. What a difference 10 years makes!

Now let’s apply this principle of exponential mathematics to leadership. If you get a head-start, make small investments in your career early on, it will pay off in dividends later on. By “investments,” I’m talking about the seemingly little, subtle, fundamental elements of leadership—like how you read a person and address the little nuances. Or how you approach conflict, or even how well you really listen to a peer or superior or subordinate. These elements, the so-called “no-brainers” are basic tenets of smart leaders. The sooner you learn and apply these fundamentals, just as the sooner you start saving as opposed to spending, the faster you can build your professional prowess and see the results of this investment in yourself and your professional development pay off.

You’ll be in a much better position to manage a $50 million budget if you managed a $5 million budget well by nailing-down the fundamentals, just as you’ll be in a much better position to lead 80 professionals when you manage a team of eight in a way that commands respect—by your showing “basic” characteristics of respectful listening or, if need be, conflict resolution.

The difference between compounding with regard to your personal piggy bank vs. compounding with regard to your professional development, is the latter is imperative. You can decide to save money later in your career. You won’t have as big of a nest egg, but that is the price you’ll pay. With regard to professional development, in order to be successful when you have greater responsibility and more accountability is demanded of you—when the stakes are simply so much higher—you have to master those seemingly small acts and behaviors early on.

It is unlikely, if you haven’t saved at all, that you’ll make into the “Millionaire’s Next Door” club by beginning to invest when you’re just a few years shy of retirement. Just as it’s unlikely you’ll reach your professional goals if you don’t start to “put something away” for yourself and your career during the earliest years—when the learning curve is very steep, but the opportunity for growth is seemingly boundless.

What are you doing to add to your leadership piggy bank TODAY?