Compounded

Would you rather have $1,000,000 dollars today or 1¢ with your total doubling every day for 30 days? Unless you are very young or haven’t been paying attention, you will choose the penny and end up with over $5,000,000 dollars. This is an example of exponential growth and is often used as an encouragement to save and take advantage of compounding interest (though your results in any account or market I’m aware of will never get close to this magnitude).

The origin of this problem is based on stories told in India about a king, a chessboard, and some rice. Before playing a game of chess with a sage, the king asks what prize he would ask if he were to win. The sage replies all he wished for was a few grains of rice. One grain of rice shall be placed in the first square of the chess board, two grains in the second square, four in the third square, and so on. Every square will have double the amount of its predecessor.

The king agrees, thinking this a paltry reward. When the sage wins and the king begins to pay the reward, he finds himself unable, as the total rice on the chessboard would be 18,446,744,073,709,551,615 grains, translating to trillions of tons of rice. The sage allows that he may pay over time by serving rice pudding for free in the temple so the poor can eat until the debt is paid. They are still serving Payasam, a sweet pudding made of rice and milk in the Ambalappuzha Temple in India to this day.

I’ve already used half my word count for this musing, and you must be wondering what this has to do with leadership. Well, I was reading The 7 Habits of Highly Effective People,and one of the points the book makes is the power of making deposits into people’s emotional bank accounts.

Showing respect, keeping promises, clarifying expectations, being honest, and apologizing sincerely are examples of the deposits we can make into other’s accounts. These all sound like leader things to do. Conversely, criticizing, speaking with contempt (or sarcasm), raising your voice, talking negatively about others, and interrupting (like checking your phone when they are speaking) are withdrawals that reduce the balance.

While compounding doesn’t work as well as doubling, it is true that if you receive interest on something, the more you have, the more you get. This works with emotional bank accounts too. As we make deposits, the balance grows faster than just the sum of each individual deposit. Compounding occurs, causing small investments, over time, to grow into substantial balances. As people feel valued and respected by you, the worth of your investments in them increase.

Leading a team or community requires asking people to trust you and do hard things in pursuit of a vision. When we have made deposits in their emotional bank accounts, compounded by consistency and humility, they have the resources to give us back what we need from them. If that account is low or overdrawn, they will be unable to cover the checks we are writing. Great leaders make sure to deposit far more than they withdraw, keeping a healthy balance and investing in the Bison Way.