“Great things are done by a series of small things brought together.” – Vincent Van Gogh
I have been thinking of writing this post for a long time. Since my very first post, this topic was front of mind. But I put it off. Again and again. Finding other topics to fill the pages.
The reason I knew this would eventually be a topic for this blog is how critical it is to attaining financial independence. If I had to pick one concept that explains how I attained it, it would be because of the concept described below. So from my perspective… IT IS A BIG F-ING DEAL!!!!!
And that brings me back to why I have put it off. I did not want to blow it. In my experience, there are certain people in this world that rise to the challenge that is presented to them. People like elite athletes that win the gold medal or heroes in the military who save a life. Seems like they are always at their best when the lights are the brightest and the pressure is the greatest.
Unfortunately for you and me, I am not one of those people. In fact, as much as I hate to admit it, I am much closer to the “choke artist” than I am to anyone who rises to the occasion. But who knows. Maybe today is finally my day to prove my 40 some years of choking history were just a fluke, and I will finally step up my game.
So let’s get to it.
My first introduction to the concept of aggregation of marginal gains was from a book called Good to Great by Jim Collins. The book describes how good companies are able to make the leap from being just “good” to becoming “great” companies.
How did Jim define great? Well, the companies analyzed in the book generated cumulative stock returns that beat the general stock market by an average of seven times in fifteen years, better than twice the results delivered by a composite index of the world’s conventionally “good” companies, such as Coca-Cola, Intel, General Electric, and Merck. These great companies included Abbott Laboratories, Circuit City, Fannie May, Gillette Company, Kroger and Philip Morris as some examples.
By analyzing these great companies (during their rise to greatness), Collins and his team attempted to find out the commonality that allowed them to become so successful. In other words, what was their secret sauce? For me, it was similar to my quest to find out what made successful people so successful. I figured if there is a secret, I need to know it and… then hopefully copy it…
What I found most interesting in this book is that there was no secret sauce. At first, a very disappointing realization. I was expecting that there would be some clearly identifiable trait, strategy, technological innovation, etc. that explained how these great companies were unique from all the rest.
But what this book uncovers is that instead of these successful companies doing one major thing well or attaining a significant breakthrough, it was actually a bunch of small initiatives that each company initiated over a long period. Things such as hiring the right people, tracking the right metrics, employing the right organizational structure, etc. Nothing revolutionary. But by focusing on these small improvements over time, rentelessly…. these companies transformed from good to great results.
In the book Jim Collins uses a flywheel as an example. A huge and heavy wheel that needs to be spinning to be productive. But this wheel starts from a standstill. And needs energy applied to it to get it rotating. However, given its size and inertia, it is a daunting task to get it spinning effectively from a dead stop. So how does a successful company get its flywheel spinning?
It uses a serious of small decisions, choices, hires, training… or “pushes” to get the wheel to spin. It may take hundreds of small pushes. But each small push, focused in the right direction, contributes to the wheel moving faster and faster. The cool part is that no individual decision, activity or “push” on the flywheel is meaningful. Instead it is the cumulative effect of a bunch of small decisions layered on top of one another that moves the needle…. or the flywheel forward.
I must admit, when I read this, it seemed like a novel, solid concept. But it did not quite hit home for me. I did not quite grasp the importance of this concept until I read the blog of a famous personal finance blogger in the UK named the Escape Artist. He described this concept using perhaps even a better analogy than the flywheel. He described the success of Great Britain’s cycling team.
Before Dave Brailsford become the General Manager and Performance Director for the team, Great Britain had been a below average cycling team. Evidenced by the fact that, up until his hiring, no Brit had ever won the Tour de France. Brailsford was tasked with mission to do just that.
When he took over, he did all the obvious things to improve the cycling team. He worked on nutrition, technique and bike mechanics. But he didn’t stop there. He focused intensely on improving every facet of the cycling teams performance. No matter how small. He believed that by identifying every detail that would contribute to a rider’s performance and improving it by as little as 1%, that these small improvements would add up to significant results.
Perhaps the most famous improvements by the coach was to bring along each of the rider’s pillows to use at night during the race. Getting a good night sleep is such an important but often overlooked part of the racer’s success. So by having their own pillows, the racer’s would fall asleep perhaps a little quicker or perhaps sleep a bit more soundly. And this would contribute to a slight edge over their competition.
As you might imagine, a British rider did not win the Tour de France in the coaches first year. Or the second. But by the third year, Britian had produced their very first Tour champion.
This story just blew me away the first time I heard it. I still get chills as I type it.
It hits home for me for two reasons. First due to its subtle nature of its lesson. Obviously just bringing a cyclist’s pillow did not cause him to win the Tour de France. Such a small and insignificant change is too minor to have such a profound impact… on its own. But when it is part of a series of changes. A focus on several small changes that all push the rider in the same direction…. To be more effiecient and faster. Then all of a sudden these improvements become significant. Just like the small pushes on the flywheel.
The other part of this story that I love, even more, is what it does not have. A secret sauce. Or some magic bullet that would likely be hard to replicate. Like some proprietary training method or exotic pedaling technique.
Instead this story shows us that very simple and small improvements lead to big outcomes. You do not have to uncover some complicated hard to replicate formula. All that you need is clear vision of the outcome you want, and the discipline to make small changes over times that push you towards that goal.
Hopefully, if I am doing a good job with this post, the parallels with personal finance are obvious. You don’t need to hit a home run to get rich. You just need to hit a series of singles. One after another. Mowing your own lawn, making a greeting card, taking a walk in the park instead of paying for an expensive museum membership. All these things add up and can make a big difference in your financial life.
I am the best example of this. By all accounts, I am a pretty ordinary dude. I have a relatively average job and live a pretty normal life. So why do I have such a large net worth? I am a multi-millionaire whose passive income exceeds my living expenses. So I am financially free. And I did it before I was 40.
There is no one reason for financial success. There are 100. 100 very small and insignificant reasons. Just about every day I make my own lunch. That probably saves me $5-10 every day. This alone did not get me to financial independence. But when adding it to the fact that I:
- Drive a fuel efficient car
- Invest in low cost index funds
- Send my kids to public school
- Change my own engine oil
- Clip coupons
- Dry my clothes on a drying rack instead of using the clothes dryer
And the list goes on and on…..
So if you want to improve your finances. Start with something small and easy. And just keep right on adding…. The effect over time will get bigger and bigger…
So what are you waiting for? As one of my favorite quotes says something to the effect of, “the best time to start saving is when you are young. The second best time is right now.”