Multiply by 1.1
In a recent Outside Insights episode of Permanent Podcast, Shane Parrish (founder of Farnam Street and proponent of continuous learning, mental models, and the power of ritual over motivation or discipline) talked about how small gains compound:
“If I told you there was something you’re going to do every day for the rest of your life and that it’s going to compound in such a way that any incremental gain today is going to be your new baseline for tomorrow, you would instantly recognize that being a little bit better at this thing over a long period of time would translate to massive results.”
He was specifically talking about learning and reflection, but the same principle applies to what we call the table stakes of business hygiene – or the business of business: operations, finance, people, marketing, tech, systems, legal, strategic planning, sales, accounting… stick them together in a business and they’re what’s called a multiplicative system.
What does that mean? In a multiplicative system, small, incremental gains accumulate over time to produce significant results. Multiplication is a repeated process, so each incremental gain is multiplied by the previous result.
But when we say that businesses are “multiplicative systems” – especially regarding that “tastes like chicken” layer of business – we don’t just mean that small gains in individual parts of the business will compound (although that’s part of it). Each area (from finance to operations to strategic planning and beyond) has the potential to be a multiplier for the other parts of the business. Leveling up one area of the business, even by 1%, can spread.
But in practice, for small businesses, we frequently see that one or more of these areas are a 1x, if not something significantly less than 1. Take legal as one example. There are significant advantages and protections you can accrue to your business if you have competent and active legal advice on your side (call that a 5x). But if you open yourself up to a tremendous amount of liability, you’re not going to be in business very long (anything multiplied by 0 goes to 0).
Small businesses don’t stay small on purpose, and running at less than 1 in any area is frequently the culprit. Even if you’re multiplying by 0.9x, you’re throwing up roadblocks for other parts of your business and ultimately decreasing the value of your business over time.
But it works the other way, too.
When you make even the smallest gain – level up one area of your business, invest in one outstanding new employee, increase your capacity by a tiny percent, expand the reach of your marketing efforts by a few people, you have a new baseline to be building from, and not just in talent or production or marketing. These small nudges become contagious across an organization.
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In a multiplicative system, as you level up in scale and capacity, you’re going to start getting knock-on effects in areas where you’re behind and get new information about the realities of your capabilities in others. Take lead generation as an example. You can punch the gas, but if your production systems are not set up to handle that volume because you’ve never acknowledged that that volume could exist, you might have some downstream effects.
So what do you do in response? If you’re mindful about where you’re upping the multiple, and by how much, you can adapt, course correct, and ramp up your other processes. In other words, prepare. When you unleash capacity in one area (ideally, the area that’s responsible for your biggest constraints on growth), something else is going to become the biggest barrier to growth. You’re not going to break the system (or if you do, it will be temporary), but you will need to get ready to increase the rest of your multipliers in response.
If you’re multiplying any area of your business by anything other than a pure 1, the change will amplify and compound – for good or bad. And it’s hard to rein in once the direction of change has caught hold. Small tweaks in one area of the business, when met with enthusiasm and renewed commitment in adjacent areas, can produce massive results over time. You don’t have to multiply by 50 once. Instead compound the extra 0.1.
