As a sophomore in college it was required for me to take Accounting 101. I remember the first day of class thinking, “Finally, I am done with general studies!” What a relief to no longer be bored with English, Biology, Algebra, and History. No offense meant to the general studies folks- it just wasn’t my cup of tea no matter the flavor. This class represented what I came to college for- to learn something I could use to get a job! I wanted to make money.
It was in that class that I first understood compounding interest. Compounding is connecting the principle investment to the interest earned and then having that amount continue to rise over time because of the impact. That’s a terribly simple explanation. Although the principles of compounding are naturally associated with finance, I believe they are also associated with leadership. Here’s what I mean.
Think of the managers in an organization as a principle investment. The more valuable your principle investment, the greater potential you have for higher returns resulting from interest over time. Make sense? Good.
Speaking of interest, we know that the higher the rate the higher the return. Let’s use the customers of a business to represent the interest rate. Do you see why? When customer engagement is high the return to the business is increased sales. When it’s low the sales are decreased. Time is another significant factor in compounding. The longer the better if you’ve got a good principle investment and a good interest rate. Let’s let the employees who work for a manager represent time. Your customers interact with these employees and that interaction is a significant factor on your returns, right?
Here is the math: sales are the returns on the business’s principle investment (managers) and the impact of time (employees of the business) and interest (customer engagement). Some call this the snowball effect. It just keeps getting bigger! This is where it gets interesting. How does this connect to your business?
Managers who demonstrate care for team members are the highest principle investment your business can make. When your employees direct supervisor creates a work environment characterized by care the by-product is an engaged workforce. When the workforce is engaged, the result is a more committed, dedicated, and motivated group of people determined to make the organization a success. This creates an atmosphere of concern for the customer and produces customer engagement. The engaged customer is the paying customer: and he or she pays many times over through initial sales, extended sales, larger sales, repeat sales! You get the point, right?
The opposite is also true. If you make a small investment you’re going to get a small return. Managers who are ill equipped to create a caring work environment with their direct reports pay the price. And so does their organization. Follow the strand with me here. These managers foster disengaged employees who aren’t deeply committed to the success of the organization. Why would they be? If you said because of the paycheck they receive, that’s not a good answer. We aren’t working with robots folks. People will check out on you if this is your reasoning, and when they do they are also going to check out on your customers. This means no marketing campaign, sales incentive program, product line extension, new product introduction, or threat of punishment is going to cure your sales revenue problem. You can’t solve people problems without dealing with people and the people you need to start with are your managers.
The more you invest in your managers by providing them with tools and resources to grow and become experts at creating a culture of care for their employees, the greater the return in revenue to your business. Your investment (or lack thereof) is compounding. The real question is are you getting the returns your looking for with your current investing habits?
W. Shane McKenzie is an Executive Coach and Mentor who specializes in helping successful leaders leave their job to own a business using proven strategies to minimize risk.