My purpose in this article is to highlight two particular ways of thinking about progress/success that I have observed; one I will call “lottery” thinking and the other “compound interest” thinking. Adopting the “compound interest” mindset is one of the most important things you can do to help yourself.
The UK national lottery is, by any measure, very popular. As I write the lottery jackpot stands at £3.5m. A little research shows that roughly 45% of ticket purchase sales go into the prize fund. At £2 per ticket that equates to a little under 4 million tickets sold. That’s a whole lot of people making a very small investment in the hope of getting a relatively enormous payout in return.
With odds of something like 45,057,474 to 1 your chances of winning the lottery jackpot are so small you are actually more likely to be hit by a falling meteorite, or struck by lightning, or possibly both at once! Yet millions of people carry on paying their £2 week-in, week-out. If you bought a ticket every week for a year that’s £104. It doesn’t sound like very much but what else could you do with that money? It’s enough to buy half a dozen online courses and an armful of improving literature. What could you learn, or learn how to do, with those?
If you wanted to think of it as money you are investing in your future, which would be the better choice? Which would be the better choice over 5 years? Or 10 years? That so many people choose the lottery shows that “lottery thinking” or spend-small/win-big appeals to a powerful part of the human psyche.
If we now switch to thinking about the world of business, a realm in which it is more common to think about such decisions as investments in the future, what is the picture here? Sadly, businesses people do not seem to be immune to this kind of magical thinking either. I’ve met more than a few entrepreneurs and business owners who, when you get right down to it, are subconsciously playing a kind of lottery.
Indeed, I am guilty of having been one of them.
What it looks like is this: rather than doing the small – but boring, difficult, or painful – tasks over and over again; You would, rather, hope to find a “golden ticket” by which will success surely follow. It might be a deal, a customer, a partner, or a course. Like the lottery player you hope for a single small investment that will have an outsize payoff.
It’s not hard to see how this kind of thinking comes about, the media loves to portray success as an overnight thing. This has been exacerbated by the rise of startup culture. The real story of the rocky road, lonely nights, and challenges overcome often is not presented, and as entrepreneurs we are often complicit in this. The casual reader could be forgiven for thinking the story begins with an investment banker and enormous IPO.
Everyone would like to become a success overnight. I’ve been guilty of this kind of thinking too. But for you and me it isn’t going to happen this way.
I have worked with entrepreneurs in startups and small business for 17 years and the view I have formed from that experience is that success works more like the action of compound interest on a bank account. If you put a little money in a bank account compound interest will increase it but slowly, over time. But, if you continue making small deposits, this plus the action of compound interest will transform the sum out of all proportion.
If you applying this insight to business strategy, it suggests that you need to be very careful about what you do in your business, especially the things you do (or do not do) a lot of.
As I mentioned in a previous article I think it is important that strategy be measured across the short, medium, and long-term. In the short-term you should give particular emphasis to measuring behaviours whilst in the medium/long-term the emphasis should shift to outcomes.
Why do it this way?
Because, typically, you don’t have much control over short-term outcomes. A good example is prospecting to create sales opportunities. While their approach can surely influence it, a sales person doesn’t have control over whether any particular customer will take a call or meeting with them, let alone go on to make a sale.
If you measured a sales person’s performance over a month based on how many calls or meetings they got then a relatively short run of bad luck could dominate the picture and you might label as “no good”.
However, over a longer time-frame, outcomes should start to trend based on the types of behaviour they perform regularly, and how well they perform them. It might be wrong to apply a “no good” label for not getting a meeting in a month, but if after six months? Or a year?
After a year of poor performance we surely have to look at whether the right behaviours are being practiced day-to-day. Or, if they are, whether they are being practiced well. This relates back to my previous post about failure & learning; How do we distinguish behaviours that are working from those which are not?
To start with, the behaviours you measure should have an expectation that – applied conscientiously – they will build up to success. In most businesses, for example, prospecting is an example of such a behaviour. If you measure the performance of such a behaviour & the resultant outputs there are four possible outcomes:
- behaviour consistently applied + output good => success
- behaviour consistently applied + output bad => either the behaviour is being poorly executed and/or you’ve made a wrong assumption, adopting a behaviour that does not lead to success. An example of this might be cold calling if you wanted to sell to high-net worth individuals. No matter how diligently you make calls it is unlikely you’re going to be successful selling this way.
- behaviour inconsistently applied + output good => well you’re still doing something right, or you got lucky. You should probably start A/B testing to see what is going on & consider not doing this behaviour any more.
- behaviour inconsistently applied + output bad => maybe you should start by trying to apply it consistently?
It is in 2 & 4 that you have the biggest opportunity, if you are open to doing so, to learn from your mistakes and thereby profit from them. As I talked about in my previous article “Is failure the best teacher?” it’s critical to do so.
When you start to take this viewpoint it leads you to think that everything is important and that making even small improvements in the right areas could have an outsized impact.
For example, in a business where prospecting is important, one additional prospect per day would yield 250 extra prospects a year. Let’s say you convert 10% of prospects into clients and a client is worth £10,000/year to you. That’s another £250,000 just by coming up with one more prospect each day. That could be difficult, possibly painful, but it could also be essential to building success you want.
Of course your numbers will be different to this example but I hope you can see the principle at work. Now, imagine there’s a small change you could apply to every prospecting attempt that could raise your chance of winning a client from 10% to 11% what could that be worth? Or if you could raise the average value of a client from £10,000 to £11,000? Or more?
If you pay attention to the small things that you do every day; If you learn what works and what does not, modifying your behaviour accordingly, you will build up a catalogue of small actions that build success upon success until you become an unstoppable force!
That reminds me, I need to find another prospect today. How about you? Are you planning to win the lottery? And, if not, what behaviour should you be applying more consistently to build your own success?