The Compound Effect – Part 1

Over the past 10 years or so, about 95% of the books I’ve read have been non-fiction.  I’ve done this intentionally because I really enjoy learning from great authors and hearing their perspectives on life and business.  Most of these non-fiction books have been related to entrepreneurship, business, or just living a great life in general.

So after reading all these books, I’ve gained so much knowledge and perspective, as well as strategies to succeed in business and life.  But, even though I’ve learned all these great things and had many ah-ha moments I’ve found its easy to forget all the things I’ve learned. So, a few months ago I decided that going forward, I’llstart taking notes and highlighting key parts of all the books I read.  Then I will compile all the notes in Evernote so that I could refer back to them overtime and quickly access all the key points without having to re-read the whole book.  So now that I have a blog, I thought this would be a great place to store all these notes for future reference.

Book 1

TCEBookThe first book I read after making this decision was The Compound Effect by Darren Hardy. The book is based on the principle that decisions shape your destiny. Little, everyday decisions will either take you to the life you desire or to disaster by default.  That might not sound like anything revolutionary, but as I started reading, I quickly discovered there was much more depth to the concept and it was written in a way that made it very interesting.

When being asked to explain The Compound Effect, Darren Hardy, the author described it like this:

“It is based on the principle that you can reap huge rewards from a series of small, smart choices. In other words, your present reality is the outcome of the little, seemingly innocuous decisions that have added up to your current bank balance, waistline, business success or relationship status. Success or failure is earned through the consistent habit forming practice of making smart choices over time, culminating into what Einstein called the 8th wonder of the world: compound results, or The Compound Effect.”

The concept of “The Compound Effect” is often illustrated by using an example of how compound interest makes a huge difference over time. Where if you just invest $5,000/year for 15 years at an 12% interest rate, then after 40 years it will be worth millions of dollars, even though you only put in $75K.  

An even better monetary example is the story of the two sons who both were given a choice by their wealthy father:

Option 1 – Get $3 million today that you can spend immediately.

Or Option 2: Get a penny that doubles every day for 31 days, but you have to wait until day 31 to spend any of it.

The story goes on that the older son chose option 1 and the younger son chose option 2 etc….It would be insane to turn down $3 million, right? Not really. By choosing option 2 – a penny that doubles every day for 31 days, the younger son collected over $10 million on day 31.

Here is a breakdown of the value of the penny that doubled over the 31 days:

Day 1: $.01
Day 2: $.02
Day 3: $.04
Day 4: $.08
Day 5: $.16
Day 6: $.32
Day 7: $.64
Day 8: $1.28
Day 9: $2.56
Day 10: $5.12
Day 11: $10.24
Day 12: $20.48
Day 13: $40.96
Day 14: $81.92
Day 15: $163.84
Day 16: $327.68
Day 17: $655.36
Day 18: $1,310.72
Day 19: $2,621.44
Day 20: $5,242.88
Day 21: $10,485.76
Day 22: $20,971.52
Day 23: $41,943.04
Day 24: $83,886.08
Day 25: $167,772.16
Day 26: $335,544.32
Day 27: $671,088.64
Day 28: $1,342,177.28
Day 29: $2,684,354.56
Day 30: $5,368,709.12

Day 31: $10,737,418.20

Option 2 was by far the better choice.  The lesson from this story is that because of the compound effect – a small incremental increase over 1 month made a huge difference on the end value of the money at day 31.

Just as the compound effect worked in favor for the younger son from the story above, it can make a huge difference in your life, health, business, relationships etc…  

So what does that look like?

 Hardy’s own words explain it best when he says:

“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.” 

 For example, if the goal is to become stronger a simple exercise that would harness the power of the compound effect would be to do 10 pushups today, then add one more pushup every day.  So today you would do 10 pushups, tomorrow 11, the next day 12 and so on etc…  This small incremental increase doesn’t seem like much, but after doing this for 5 months you will be doing over 150 pushups every day (over 50,000 per year).  

Another example of how this could look in every day life is by applying the concept to reading a book.  If the goal is to read 15-20 books every year to increase your knowledge or skills – that might seem overwhelming.  But by just reading 10-15 pages every day, you can easily read 15-20 200 page books every year.  By all this additional reading you will learn new things and gain new insights that can help your overall positive development in your life, business, relationships etc.

You Have A Choice

The Compound Effect - Figure 2Applying the principles from the compound effect to work for you in a positive way can make all the difference.  The Compound Effect can work for you, or against you.  If you have bad habits that are compounding each and every day, that can take you places you don’t want to go.   You might think you are just fine with the status quo, but either the compound effect is working for you or against you – you just have to make a choice to make it work for your benefit.

If you are complacent or you decide to do nothing, you can be easily crushed.  Maybe you’ve reached a level where you are comfortable and you don’t think you need to try and make progress any more.  A lesson from history shows how dangerous this can be. Complacency has impacted all great empires (Egyptians, Greeks, Romans, Spanish, Portuguese, French and English).  Why? Because nothing fails like success. People get to a certain level of success and get too comfortable. Then things fall apart.

 

“The biggest difference between successful people and unsuccessful people is that successful people are willing to do what unsuccessful people are not.”

 

Continue to Part 2 – On Habits and Knowing You Why

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  1. […] is Part 3 in my review and notes for Darren Hardy’s, The Compound Effect.  Click here for Part 1, and Part […]

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