“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t, pays it.” –Albert Einstein
It’s been said that there is no such thing as an overnight success. The same is true of failure. Your outcomes are simply the accumulation of your choices and behaviors, compounded over time.
For growth-minded leaders, the obvious question becomes, “Are my day-to-day choices and behaviors compounding in the right or wrong direction?”
The most effective leaders I know are not only aware of the compounding effect, but—in alignment with Albert Einstein’s quote above—actively use it to their advantage. Consider the case of Boris—a CEO and current coaching client. Boris constantly asks open-ended questions to simplify the business, improve clarity, and achieve better results. Some of his favorites include:
Why does this matter?
What do we mean by this?
How can we measure that?
Where is this new idea weakest? Where do its strengths lie?
Boris’ consistent questioning and drive for simplification, clarity, and results compounds in the right direction, helping his executive team and organization grow. It’s no surprise that his business has profitably scaled for years—including through 2020—despite the fact that his firm isn’t a typical high-growth organization providing a new technology or service, but a 60+ year-old manufacturing company that turns powdered metal into filters.
On the other hand, leaders who don’t understand the compounding effect struggle to advance their organizations. Joe (not his real name) was a CEO I coached many years ago. Although he built and ran a successful family business, he and his relatives had significant trust issues when it came to non-family employees. Joe wanted his executive team to step up and run the business’s operations without him, yet every day, he or another family member questioned their decisions and actions—effectively micromanaging and handcuffing the very team he said he wanted to be more independent. Those behaviors compounded in the wrong direction over time and virtually eliminated Joe’s ability to fulfill his aspirations. Unsurprisingly, all of the executives on his senior team quit within three years.
“Your outcomes are simply the
accumulation of your choices and behaviors,
compounded over time.” Click here to Tweet.
As we delve deeper into the compounding effect, it’s important to note that this concept is not about intentions; it’s about behaviors. For example, although my client Joe had noble intentions as most business leaders do—his behaviors held him back.
Four Behaviors that Compound for Growth
In my book Creating a Culture of Accountability, I identify nine accountable leadership behaviors that compound successfully over time. Here we’ll unpack four of them, each with the potential to make a significant difference in your outcomes. We’ll also expose the flipside of each: a corresponding behavior that compounds in the wrong direction, limiting leadership effectiveness.
1. Hold Yourself and Others to High Expectations
Extensive research and real-world experience illustrate that people perform up or down to the level of expectations set for them. Time and again, in studies and in the workplace, people achieve incredible outcomes—or lackluster results—depending on what others seem to believe they are capable of.
University of California psychologist Robert Rosenthal demonstrated this with an experiment that measured how teacher expectations affect student achievement. At the beginning of an academic year, Rosenthal selected children at random and informed their teachers that they had particularly high potential. Lo and behold, at the end of the school year, those “high-potential” children outperformed their peers. The explanation for their success? The teachers believed they were talented, treated them accordingly, and the students met the expectations.
This phenomenon goes both ways. If the teachers had been warned that the same students were more difficult or less skilled than others, they would have changed how they related to the students and lowered their expectations. The children, in turn, probably—and unfortunately—would have met them.
An additional, extremely costly consequence of low expectations I’ve observed directly in organizations is the willingness of managers to tolerate attitudes, behaviors, and results that would be intolerable in a higher-expectation environment. As Jocko Willink and Leif Babin astutely point out in their book Extreme Ownership, what you tolerate in any individual sets the performance bar for your entire organization.
The compounding effect of high expectations must begin with you. When you lead by example and set high standards for yourself, then hold the same expectations of others, your team and the rest of the organization will follow your lead.
On the other hand, if you set high expectations for others, but fail to walk your own talk, you’ll set the stage for disappointment and lackluster performance as your team follows your behaviors but not your words. Here’s a basic example: if you insist that all meetings start on time but usually show up 3-5 minutes late yourself, your team is likely to ignore what you’re saying and emulate what you’re doing. This leadership “saying / doing gap” effectively lowers your expectations of others to your own level of performance which, in turn, activates the adage that those who don’t expect much usually get exactly that.
2. Continually Course Correct
In business and in life, nothing goes exactly according to plan, no matter how much you prepare. As such, just as a ship continuously course corrects to counteract winds and currents to successfully navigate from point a to b, so must a business. Both ship captains and high performing leaders know it’s far more effective to make a large number of small adjustments over time than it is to make a small number of large adjustments late in the game.
Although most people acknowledge that there is a much higher cost associated with delayed, larger corrections than with incremental ones, many struggle to execute on this relatively simple idea. It turns out that there’s so much fear around being labeled a micromanager that leaders miss real opportunities for small adjustments that yield vastly better outcomes in the end. Course correction isn’t micromanagement, rather it’s accountable leadership! So, face your fears head-on and course correct more frequently.
To make this work, use a regular conversation rhythm with your team to keep them on track and account for any snags. Note that this process doesn’t just apply to projects, but also to culture and people. Constant corrections and adjustments enable smooth sailing in every area of your operation.
What behavior compounds in the wrong direction here? Tolerating even slight deviations from the expected course. For example, if you don’t course correct behaviors that run counter to your core values and culture when you see them, you’re tacitly communicating to the organization that those behaviors are appropriate within the culture! When you accept sub-par behaviors and performance, you’ll find yourself on a detour that may never lead to your aspirations across the main channel.
3. Seek Clarity
You’ll remember that my client Boris exemplifies this compounding behavior. Strategy, priorities, roles, accountability, metrics, and more are subject to scrutiny, with the goal of developing the clearest understanding possible among the leadership team and beyond. Being clarity-driven is all about posing uncomfortable questions, asking for more information, making sure people are on the same page, and ultimately reaching a level of detail so granular that the team can’t help but have a unified understanding of where you are, the reality of your situation, where you’re going, and how you plan to get there.
Here’s an example of how this works: At a monthly “all-hands” meeting, a CEO declares that her company’s goal for the coming quarter is “to improve customer service so we have happier customers.” Although it sounds noble enough, it’s neither clear nor specific, and therefore not very useful to set the stage for a successful outcome. What exactly does “happy customer” mean, how do you measure that, and why does it matter? Are there other factors like manufacturing quality, timely shipping, and product design weaknesses that might also contribute to customer satisfaction—beyond the influence and capabilities of the customer service team?
Now, if instead she clarifies that what she means by “happier customers” is that fewer complaints result, and that fewer complaints correlate with more repeat business while also freeing more resources for innovation, her team would have more precise and useful context and clarity. A statement like that more readily translates into an achievable goal, such as “reducing quality- and service-related complaint calls by 75 percent over the next quarter.” That’s a specific, clear, measurable outcome. Increased context and clarity compound over time into better overall results.
There’s another benefit here. Clarity often cohabitates with simplicity–the more you know about what you’re trying to accomplish, the more you can pare away unnecessary complication. What’s more, when you see things in their simplest form, you have more power over their progress.
“Clarity often cohabitates with simplicity —
the more you know about what you’re trying to
accomplish, the more you can pare away
unnecessary complication” Click here to Tweet.
On the other hand, leaders who accept ambiguity and complexity (often using words like “inevitable” or “expected” as justification) find themselves on the wrong side of the compounding effect. Right back to the rule of expectations producing commensurate results, these leaders and their organizations get stuck dealing with complexity as a prime, seemingly immovable obstacle to sustainable, scalable growth.
4. Communicate Transparently
My globally deployed coaching colleagues and I unanimously agree that regardless of industry, culture, geography, and stage of growth, under-communication remains THE number one problem in business. Why is this such a common pain point? After all, for the most part, as leaders and as people, we believe we are good communicators. Here’s the rub: In reality, most of us aren’t nearly as effective as we think.
There are two cognitive biases that contribute to the challenge of fully embracing this compounding leadership behavior: Confirmation Bias and The Curse of Knowledge. Confirmation Bias is our tendency to seek out, choose, and interpret information in a manner that aligns with our existing assumptions—further solidifying an already-held belief. In other words, if you think you’re a pretty good communicator, you’ll tend to pay attention to evidence that supports your position while discounting information to the contrary. When we succumb to the Curse of Knowledge, we unconsciously and erroneously assume that others have the same information we do, when that is rarely the case. If you’ve ever had to stop someone mid-story because, in the telling, they left logical gaps that made it difficult to understand, you’ve been on the receiving end of the Curse of Knowledge!
To improve the compounding effect of transparent communication, first acknowledge that you must improve and apply focus to overcome your Confirmation Bias. Then, to combat the Curse of Knowledge, use communication rhythms and the WWWHWI framework to convey information to your teams.
Frequency is a vital component of effective communication. Most often, this comes in the form of regular communication rhythms, which I use with my clients to great effect. Although they work up to the full rhythm over time, we implement daily, weekly, monthly, quarterly, and annual meeting rhythms companywide. The WWWHWI framework follows the sequence Why, What, When, How, and What If to convey information (leveraging decades of research about how people absorb information and learn). Adopt this sequential framework anytime you need to communicate something to improve your effectiveness.
Of course, the opposite of transparent communication is withholding information from others, which I’ve seen well-intentioned leaders justify for all sorts of reasons. Again, while this may not be your aim, it’s a leadership behavior pattern that compounds in the wrong direction.
The compounding effect of behavior works relentlessly and reliably, one way or another. As such, the most powerful macro compounding behavior at your disposal is to pause and consider the following question every day: “Are my choices and behaviors today compounding in the right or wrong direction?”
From there, start small. Choose one of the four compounding leadership behaviors, determine specifically how you’ll honor it daily, and get going to build a new, compounding habit. Be sure that your actions reflect your intentions!
If habit change is a challenge, try using the Change Your Habits Tool (it’s free) from my first book Activators – A CEO’s Guide to Clearer Thinking and Getting Things Done.
Lastly, as is the case with instituting any new behavior / habit, it’s critical to find allies who support your efforts. A colleague, industry peer, or external coach or consultant can provide valuable, ongoing feedback as to how you’re doing and also help hold you accountable to your commitment.
Like so many of my coaching clients, you’ll be surprised as to how quickly you’ll accrue the benefits of the compounding effect!
In my work as a business and leadership growth coach, I encounter articles, research, and stories about how leaders learn, grow, and become more effective. As you’ll see below, I share just two or three in each edition of my newsletter – particularly those at the intersection of leadership, business growth, and behavior change.
The High Price of Mistrust (FS Blog)
“Mistrust is expensive.
We need to trust the people around us in order to live happy, productive lives. If we don’t trust them, we end up having to find costly ways to formalize our relationships. Even if we’re not engaged with other people on a social or civic level, we still have to transact with them on an economic one. We still have to walk along the same streets, send our children to the same schools, and spend afternoons in the same parks.
To live our lives freely, we need to to find ways to trust that other people won‘t hurt us, rip us off, or otherwise harm us. Otherwise we may lose something too precious to put a price tag on…”
“Can you summarize your company’s strategy in 35 words or less? If so, would your colleagues put it the same way?
It is our experience that very few executives can honestly answer these simple questions in the affirmative. And the companies that those executives work for are often the most successful in their industry. One is Edward Jones, a St. Louis–based brokerage firm with which one of us has been involved for more than 10 years. The fourth-largest brokerage in the United States, Jones has quadrupled its market share during the past two decades, has consistently outperformed its rivals in terms of ROI through bull and bear markets, and has been a fixture on Fortune’s list of the top companies to work for. It’s a safe bet that just about every one of its 37,000 employees could express the company’s succinct strategy statement.
Conversely, companies that don’t have a simple and clear statement of strategy are likely to fall into the sorry category of those that have failed to execute their strategy or, worse, those that never even had one…”
Next Steps to Accelerate Your Leadership Success…