In today’s podcast we look at the impact of exponential growth and compounding on business. This week I attended the WBECS Online Coaching Summit and it triggered me to think about the impacts this exponential effect has on business. When you put in lots of effort and don’t see huge results upfront, do you pull the pin? The question is, are you giving up too early because you’re jumping out before the compounding effect takes place?
This is an episode in thought leadership and is intended to challenge you to think. The actionable education part is to simply not to give things up too early!
Listen to the episode on all good podcast services, watch on YouTube or if you prefer to read, check out the transcript below.
Disclaimer – All information provided today is general in nature. The numbers given are purely for example purposes and are NOT reflective of real-life results. They are simply to make a point. In an imperfect world you’re unlikely to achieve such perfect results! Please reach out to Jane if required for personalised advice or coaching.
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Season 2 Episode 20 FAQ Business Podcast transcription | The impact of compounding on business
00:01 Are you giving up too early?
This week I attended a session at the WBECS Online Coaching Summit and it covered a topic about exponentials and I found it quite fascinating. But it also triggered me to think about all the impact compounding has on our small businesses in so many areas. Are you giving up too early because you’re jumping out before the compounding effect takes place?
00:29 Welcome to the FAQ Business Podcast hosted by Jane Tweedy
Welcome to the FAQ Business Podcast for business owners, covering four pillars, actionable education, inspiring leaders, businesses like you, and thought leadership where we challenge your thinking. Hosted by myself, Jane Tweedy, I’m founder and lead trainer of FAQ Business Training, where we want to avoid you getting ripped off or ripping yourself off. We’ll feature an amazing diversity of guests with lots to educate and inspire you. Let’s jump into today’s episode of the FAQ Business Podcast.
01:06 Today’s topic relates to session at WBECS Online Coaching Summit
Hi, I’m Jane Tweedy from FAQ Business Training and host of the FAQ Business Podcast. Today’s topic came about because of a session I attended at the WBECS Online Coaching Summit.
01:19 Exponentials – potential for huge growth but happens slowly
It included a piece about exponentials which was aimed to teach two things. Number one, that we are so out of touch with reality when we think about what we know about something. If I ask you for a range, often, even if I say it’s the widest range you can possibly do, you will still get the answer wrong because we don’t know what we don’t know and it emphasises that point.
But secondly, it was huge the exponential growth. And that exponential growth happens slowly. It starts slowly and we’re only going dut, dut, dut and then eventually it just really escalates and goes like you’re climbing a mountain.
02:03 Connection between compounding and exponentials
There is a difference between compounding and exponentials, but I really want to emphasise today the connection between the two of them. So let’s start by looking at the example that was given in the session which triggered this podcast idea in the first place.
02:17 Example of two scenarios to give example of potential growth
I’m going to give you the scenario that was discussed in the summit but I’m going to take things slightly further. I want you to consider in your situation if you were offered a penny for the first day and that doubles on the second day, etc, but in exchange to get that penny you have to invest 1 hour of your time, are you going to take the offer?
Because that is kind of like what we’re doing when we invest an hour of our day in our socials and we’re not seeing return, we kind of stop doing it because we go, what’s the point? So that’s what I want to emphasise today.
02:53 Guaranteed $30 for 30 days or 1 cent day one doubling each day
So the two scenarios are you have a dollar a day that you can receive for 30 days no exchange for anything you’re just going to guaranteed at the end of the 30 days you would have had $30 given to you. Done, sorted.
Alternatively, however, for the 30 days you’re going to receive 1 single penny, 1 single cent on day one, on day two you’re going to receive 2 cents, on day three it’s going to double again to 4 cents, day four double to 8 cents, see what’s going on here.
03:27 The impact of compounding and the exponential effect of that
So it’s the impact of that compounding, but also the exponential effect of what happens when that compounding is going on. So after ten days you would have received $10.23 because on that last day you would have received over $5.00. Remember, if we were doing an hour of your time to get that money, it’s like a dollar an hour. So many people would go, that’s so not worth my time. I’ve given it a good go. I gave it ten days and I’m not seeing the return, so I don’t really want to proceed. However, there is an exponential effect you’re not seeing yet.
Geoff Tuck presented the session and he presented these two scenarios. So the dollar a day for 30 days, kind of a guaranteed offer or the single penny on the first day doubling up.
04:18 Most people were way off the mark of what you would have after 30 days
He then asked people, how much do you think you would have after the end of 30 days? Almost everyone was so far off the mark, so far off the mark. And if you’re thinking of a number now, I bet you it is way off the mark as well. So do that. Think of a number now. If it’s doubling every day but starting at a cent, then two cent and etc, what will it be after 30 days?
Think about it because the number is huge and I’m giving you a tip it’s huge. I bet you you’ll still be under shooting it. So unless you’re a mathematical genius or you’re quickly shoving this into the calculator or the Excel spreadsheet, you won’t work out the number.
05:04 In the first ten days results were very similar
You receive the 1 cent, then it goes 2 cents, then it goes to 4 cents, 8 cents, etc. After ten days you’re going to be receiving $5.12 which gives you a total combined for the ten days of $10.23. So very similar to what you would have got in the other scenario. You would have received ten days getting your dollar a day. So you would have got $10.
So the first ten days are almost exactly identical. As you can see here you’ve got half of your return from the very last day. I want you to remember that because that’s quite key.
05:43 But what happens at the 20 day mark?
What happens if you continue it through to the 20 day mark? By 20 days you’d actually be receiving $5,242.88 on that day. That would give you a grand total of $10,485.75 over the 20 days versus $20 at a dollar a day. So much, much higher, but still not extravagantly higher compared to what you get to by waiting another ten days.
06:15 From 20 to 30 days we keep doubling to a whopping $5,368,709.12 received on day 30 alone!
So if we continue from day 20 to day 30 and we keep going up and doubling each day, this is phenomenal. You would receive a whopping $5,368,709.12 on that day 30. Oh my God. And the grand total would be $10,737,418.23. So remember, at day ten you’re probably going $10, it’s a dollar a day I’m getting, but by day 30, you’ve got nearly $11 million of return. Can we see the difference here? Big numbers.
07:02 Not saying you will have these numbers but trying to show the point
So obviously this is an exponential effect. I’m certainly not saying by doing things you’re going to suddenly have those kind of numbers. But I’m just trying to show the point here, okay, because it makes a strong point and I’m sure none of you really thought about it like that. But now we’re going to take it down to a smaller scale, well, very soon we are.
07:21 By sticking with it we have made a huge difference
But just remember, by sticking to something, by going from the ten days up to the 30 days, we really made a huge, huge change and huge difference. And this shows why we never want to give things up too early. I’m trying to make the point that I bet you you had no idea that by starting with 1 cent a day we could get that 10 million mark by the end of one month when we were doubling it each day.
07:52 But remember the first 10 days showed very little growth
But also remember that the growth was slow at the start. The first ten days, we really didn’t see much growth at all. By 20 days in we’d seen a bit of growth, but still nowhere near what we’ve got to exponentially by day 30. So remember, keep persevering, keep pushing through, because you may just be on that precipice of that great increase that is going to happen.
So how can we apply this concept in our business? When might we want to think about the impacts of compounding exponentials in our businesses?
08:29 Expecting to get 150 sales for first event is highly unlikely
I’m going to give you three or four areas which I think are important. First one, a lady was advertising an event, and I actually did say to her, look, don’t be too disappointed if you don’t get the type of sales you’re asking for. She was hoping to get 150 sales for her very first event. And let’s face it, that doesn’t happen very often, doesn’t mean it’s impossible, I don’t want to put my limiting beliefs, but I can see from other people doing it it is highly unlikely. And in the end, she actually did end up cancelling the event for a lack of sales.
09:02 Even Marie Forleo struggled with her first event
People like Marie Forleo, who now get many thousands, tens of thousands of people at an event, started off struggling to get one herself at an event. You’ve got to start somewhere. So don’t be put off because your first attempts at something are generating low numbers. That happens. And even when we’ve been around a while, it happens.
09:25 This week I rescheduled an event due to illness and only got one person
Even just this week because I’ve been sick and I thought I was better and no, I’m not, damn it. But even this week I had to reschedule things and move things around. And I had one person show up, one person, and I’m like, what is the point in this? Why am I doing this for one person? But that one person thought it was brilliant.
09:46 I’m still building material and content to use in the future
And I know other people that couldn’t make it for very valid reasons, but also I’m building up material and content that I’m going to be able to use in the future as well for other things when there are more people. So don’t just focus on the here and now and the results you’re getting now, because you might be bitterly disappointed, for not really any reason.
10:06 Compounding and the productivity results
The first example of compounding I want to emphasise is productivity and results. So let’s say you make an incremental change of 1% every day. Every day you’re 1% more productive and generating hopefully 1% more results. So let’s look at the idea of compounding that change. In this case, we’re not exponentially doing it we’re not doubling it up every day.
10:32 Growth starts off small but then gets bigger over time
But there still will be that exponential growth by the end of the period, by consistently every single day doing 1%, because the 1% is building on the day before’s tally. And so after day one, it’s 1.01 times an extra percent. Okay. So each day it’s getting bigger, and again, the growth starts off small, but it gets bigger over time.
10:57 You might spend an extra 1% of your day doing something extra
So if every day you aim to make the day a percent better than the day before. Say, for instance, instead of making 100 calls, you make 101 calls. Okay, that might be a bit extreme but it might be that you spend an extra 1% of your day doing a particular activity which is not that big a deal right? It doesn’t seem like much, but it certainly can make a big difference over time.
Again, I’m just going to put this in money terms because it’s easier to do. So let’s say we start with one dollars on day, we get one dollars invested, we make a 1% return on that first day.
11:33 The first 10 days doesn’t seem like a big deal
So by the end of our first day, we have and $1.01. Then that $1.01 is compounded at another percent higher. Over time, it keeps going up. So because those incremental increases are so marginal at the start, after ten days our initial dollar is only $1.10 okay but it’s $1.10 and a bit of fractions at the end that we can’t see. So you might think not a big deal, right?
12:00 After 30 days it is starting to look like a decent sized return
After 30 days, our dollar has actually hit $1.35. And again, that might not sound like much, but remember, that’s still a decent sized return for a 30 day period. Where can you stick your money and not get more than like .00% of a return at the moment?
12:21 After 100 days we can see 170% return
After 100 days, that dollar has gone from a dollar to $2.70, 170% return in 100 days. Now, remember, if you annualize, that make it per annum we’re talking a very, very high percentage return. But what about that exponential effect it carries on right? So we’re going up and up and up and up now. So we took that really slow start but then we’re accelerating.
12:51 After 365 days we are now seeing 3,678% return
So after a year or 365 days, it is now worth $37.78, which is a whopping 3,678% annual increase. How many investments do you get that kind of return for? You don’t. And all of that was done by just making that 1% change each day. The results are phenomenal. Think about it 1% really isn’t that hard.
13:23 The little changes are starting to add up
So after putting those few extra minutes in, you’re getting that return, or instead of saying, I’ll leave it till tomorrow, do it today, those little changes are starting to add up and making it count. And again, these are just a simplified example to show you the impacts. Certainly don’t say that that’s going to be the type of return you’re going to generate.
13:43 Compound interest can work against us not for us
So compounding interest, this is where it offen works against you, not for you. The similar effect of what we were just talking about but imagine that was money that we were paying on a loan. So be very careful with loans, particularly what we call payday lenders, people that will give you that emergency funding much easier to get, but their returns are really, really high.
14:06 Might seem like a low rate but when compounded it can end up exceptionally high
So instead of charging you 15% or whatever, instead of charging you 3%, like on a housing loan or whatever, they’re charging you these exorbitant rates per day. So check out their rates because it might sound like a low rate, but when compounded, it can be an exceptionally high rate over the course of the loan.
14:27 Remember that 1% today can become 3,778% after a year
Now, loan providers are usually required to give you certain information. So make sure you’re looking at the end information, not just the headline that you see in front of you, because it can be quite deceptive. So many people get caught out by payday lenders paying a very high rate that they just hadn’t counted on because it sounded not too bad, but really exorbitant. Remember that percent today became 3,678% over the course of a year. That’s a huge number. Like crazy high number.
14:59 Can this work for followers?
What about compounding followers? Let’s say you start your business today and obviously not started, but your starting point is 100 followers and we increase our followers by 1% today. Again, on the first day we get one new follower and we’re like, whoopdie one follower, yay. We feel like we’re not getting very far. We feel like it’s just not really the kind of big jump we were hoping for and we see other people get.
15:29 By increasing at 1% a day exponential impact kicks after 365 days
But it’s a bit like the exponential growth we mentioned before. So we now have 101% times 1% times that extra 1%. It keeps compounding up so it adds up. So say your followers started at 100 and they increased by a percent a day. After ten days, we would have 110 followers. After 30 days, we would have 135 followers after to 100 though we would actually have 270. So we can see that the number of followers is far exceeding the number of days. But the exponential impact really kicks in after 365 days, because now at 365 days, we have 3,778 followers purely by increasing at 1% a day, just 1%.
16:22 Compounding sales and clients can have a flow on effect
This is where we’ve got to remember that these small changes can have material impacts in our businesses. What about compounding sales or clients? By adding a percent more to an order, by upselling an order, we are having a flow through effect.
By having another percent clients. Instead of having 100 clients, we’ve got 101 clients. Having more clients or more upsell, giving more chance to delight people. There’s more that they can do for us. They become our sales team. And so they will be the ones spreading the word about us, not so much us.
17:00 The first 6 months the hardest as you’ve got to do the hard work
And I know when I started out the first six months, oh, my gosh, they’re so hard. Because every single customer, you’ve got to get them online, you’ve got to get them over the line. There’s nobody else. There’s no social proof. You’ve got to bring them in. You’ve got to do the hard work. You’ve got to build the networking. You’ve got to build that know, like and trust. You need to get the expertise, authority and trust happening. You need to do all the hard work for the first six months or so.
17:27 You can grow your business much quicker when you have more clients
But after that, you know what, some of it is your hard work, but some of it is those clients referring you. And that makes life so much easier. You’ll be able to grow your business much quicker once you have clients on board. So this week I saw a new business owner, and I said to her when she asked me the question, do I need to pay like a marketing agency straight up front to get me all these leads?
And I went, well, how much business do you want each month? And even when she’s kind of bigger, she only wants three or four clients a month. And I’m like, why would you be getting involved in a marketing agency trying to get you thousands of leads when you only need the small amount of leads per month? And so we talked about other ways she could do it. Much lower costs than using this marketing agency.
18:11 The more events she does the more business she will get = compounding effect
But what she was also forgetting was that she’s going to start out, she needs to get people aware that she exists, she needs to delight people. And the type of event she was involved in involved children and groups of children. So what’s going to happen is the children go to an event. At least a couple of those kids are going to go to their parents Mummy, Daddy, I want this for me. And of course, that’s going to lead to more sales.
So it’s very much a compounding effect, because every time she runs an event or more sales, more inquiries for the next time around, very much her type of business is going to rely a lot on word of mouth.
18:50 Get amazing growth with compounding and exponential effects
So I hope in today’s podcast I’ve really made you think about the impact that compounding and exponential effects have in your business. I challenge you to think about what you’re doing in your business.
Can you make those 1% changes every day or every couple of days? And get that kind of amazing growth happening in your business over a relatively short period of time. But remember, you’ve got to go through those slow periods at the start to get that stuff at the end. You’ve got to stick with it.
19:20 Persist with socials, the more people you have the more you grow
What about your socials? Are you going to show more consistency, more perseverance to continue with it? Because otherwise what tends to happen is we drop out just as we were on that verge of that next stage of success. So really think about that. Each time we grow, we grow a bit more because we have more people to share, more people to tell about our service.
19:45 I would love you to share your favourite episode with your audience
Speaking of which, if you’re loving the FAQ Business Podcast, I would love for you to share your favourite episode with your audience and share the love the more love the better, right?
Thank you so much for listening in again today and this was another episode of the FAQ Business Podcast.
20:08 Thank you for listening to the FAQ Business Podcast and please subscribe
Thank you for listening to today’s episode of the FAQ Business Podcast available on all good podcast services. You can subscribe today via FAQBusinessPodcast.com.au or directly on Apple iTunes. iHeartRadio or Spotify. Subscribe, follow, share and where able review our podcast or leave us a comment on either YouTube or our blog page.
Thanks for helping us to help you the small to medium businesses who are growing and want to make a difference. Look forward to connecting with you again on the next episode of the FAQ Business Podcast.
Today’s podcast episode featured our host Jane Tweedy. Her details are as follows:
Jane is a Professional Certified Coach with International Coaching Federation (PCC with ICF), business advisor and trainer. She loves working with growing small to medium business owners who are doing the right thing, to help them do it right! Currently, Jane offers at least 50 live sessions a year to train small business owners.
Jane offers a variety of services to clients and her online school and membership site went live late 2021. Jane’s focus for 2022 is building the membership and online school out further, and offering implementable small group training – something she finds is often the missing link.
If you are interested in training, speaking, or anything else Jane has to offer, please connect via firstname.lastname@example.org or via the contact forms on our websites.
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