The Effects of Compounding Effort
By Josh Bobrowsky
By working hard you are able to accomplish more and become more efficient with your work.
The effects over a day, week or month can be hard to see but over years the compounding effects of your effort result in massive change.
Quantifying metrics
Hypothetical Example 1:
Person A: Works 40 hours per week creating a company
Person B: Works 80 hours per week creating a company
Assume that at the start each person is equally good at creating value and that for every hour they work they will create $100 of value for their company.
A the end of the year:
Person A: created $208,000 of value for their company.
Person B: created $416,000 value for their company.
Person B has a company that has 2x the value of Person A.
Hypothetical Example 2:
Person A: Works 40 hours per week creating a company & for every 100 hours they work they increase the value of their work by 1%
Person B: Works 80 hours per week creating a company & for every 100 hours they work they increase the value of their work by 1%
At the end of the year:
Person A: Generated $230,000 in value
Person B: Generated $512,000 in value
Now lets extend the timeline to 5 years in Example 2
Person A: Generated $1.8 million in value
Person B: Generated $6.9 million in value
Hypothetical Example 3:
Now lets assume that both start out with an equal value of $100 an hour. However, lets assume the following:
Person A: Works 40 hours per week creating a company & for every 100 hours they work they increase the value of their work by 1%
Person B: Works 80 hours per week creating a company & for every 60 hours they work they increase the value of their work by 1%
The logic here is that the higher level of dedication results in a shorter iteration cycle. Clearly this person will need to be both working smart and working hard.
After 5 years
Person A: Generated $1.8 million in value
Person B: Generated $18.2 million in value
Extending Example 3 to a total of 10 years shows the truly dramatic change of compounding
After 10 years
Person A: Generated $6.9 million in value
Person B: Generated $594 million in value
This is the foundation of Elon Musk’s success as the wealthiest man in the world
Key Takeaways
Compounding makes almost no difference after one month but makes a massive difference over the years
Working both smart and hard will create the best results
Learning to learn faster and iterate faster is a key for business owners to grow. We will all make mistakes but if you can learn from them faster you can grow much bigger
Great things take time
It is worth noting all the above are over-simplifications and while compounding growth over time can occur no company or stock only moves up. You will have forward progress and setbacks along the way.
Conclusion
Working through the numbers I was most surprised by how big the gap became in the last example. The combination of hard work, fast iteration, and time creates effects that are pretty amazing. This can be useful in thinking about how some of the most successful people in the world have built their success.
Cheers
Josh Bobrowsky
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