How compounding becomes catastrophic when we replace money with problems.

If there is one thing you read as an entrepreneur today, let it be this.

I'm going to tell you about a fundamental problem I see in about 90% of the companies I work with, and if you can avoid it, you'll have a profitable company.

If there is one thing you read as an entrepreneur today, let it be this.

Compounding is a powerful investing concept that involves earning returns on both your original investment and on prior returns. For compounding to work, you need to reinvest your returns into your accounts.

Albert Einstein once said:

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.”

When does the concept of compounding become a bad thing? When CEOs apply it to their problems. Imagine you have a great month, you've beaten your revenue targets, but that growth has created many new problems for your business.

You shrug as you refresh Shopify and decide they aren't worth addressing at this time.

The next month you grow again.

What do you think the next month will bring?

If you said a new batch of problems, you're right. This month, however, you don't just have the next set of problems; you also have the set you chose to ignore, and now it's more complex. You've taken last month's problems and reinvested them into this month.

Why would a CEO do that?

Because CEOs want to grow faster than their problem-solving rate.

Let me elaborate.

One of my favorite quotes, making up the backbone of my coaching, is:

"Companies don't starve, they drown."

Singular problems don't sink companies. Compounding problems do. With each phase of growth, a new set of unforeseen issues arises (unless you have a coach like me to warn you 😉).

I'll give you an example we dealt with at QALO that growing eCommerce companies run into. A year after we launched, we began running Facebook ads, and our revenue took off.

As a result, we now had a whole new set of problems.

The manufacturer we had could no longer keep up. We didn't have enough inventory to sustain. We didn't have the right people to catch us up. We had an inbox of customer service emails piling up. We had new product releases coming up.

In this situation, you can do one of two things:

You can pace your growth and focus on the problems at hand so you don't create new ones before you solve them.

You can now launch all the new products that you want to, expand your distribution, and create a whole new set of problems.

Can you guess which one most CEOs choose?

Choosing #1 is not slowing down; it's setting a pace.

Success is not permission to complicate your business. Eat the problems on your plate. Your revenue isn't going to collapse; it isn't a one-month anomaly.

We paced our spending on Facebook. We found a new manufacturer. We hired the right team. We got ahead of customer service. We pushed our next product releases.

The CEOs who choose #2 learn the hard way that they can't solve problems as fast as they grow unless they set that pace.

You'll never eradicate problems; they'll always be lurking around the next corner.

Just be sure you're not carrying the problems of the last stage of growth with you when you turn that corner, or else that corner becomes the point of compounding.