Compounding: The Eighth Wonder of the World

By Wesley Found – President, Linborough Property Corp.

Business Advocate, page 11 – June 2024 Edition

Anything worthy of attention follows a compounding pattern. They are present in nature, art and indeed business. Compounding provides the beauty in our world and the living standard we all enjoy today.

The way a business becomes successful is compounding on old growth. Popularized compounding terms are synergies, leverage, networking, and customer mix to name a few. What is crucial in understanding compounding in this context is a small catalyst, say a pivot in product offering or price, can produce an exponential change in business outcome and by extension your community over time.

If I were to give you a choice between a million dollars or a penny that doubled in value everyday for 30 days, what would you take? Most would take the first offer. Break out your calculator and double a penny 30 times. That penny would be worth over $5,000,000! What if you increased the productivity of your business by one percent everyday? Safe to say small tasks are transformative.

The compounding effect is a way of thought rather than finance equations. Do you put more value on the present performance or laying the groundwork for future performance? In math language this is called your discount rate: how much of your time and resources do you put towards the present rather than the future?

Nature is built upon this concept. A tree may decide to spend most of its current resources producing seeds rather than growing its trunk and branches. They may even use some of their resources helping neighbouring trees via a forest’s complex root and fungal system. While seemingly altruistic, keeping the forest healthy is valuing its own future. The ecology of our world and the economics of our business landscape are akin.

From my perspective as an economist, this makes perfect sense: nature has the large task of finding the most productive way of allocating limited resources to create vibrant and diverse ecosystems.

The way we structure our society, and, in turn, our economy follows nature’s example. In this context, businesses in a community are a species of tree of different sizes, maturities, and locations. Other important community organizations and residents can be represented by the various other species of trees, shrubs, plants, and animals in the forest ecosystem.

Together, we make the economy vibrant and the community that is Kawartha Lakes. This vibrant and diverse ecosystem has a keystone species: small businesses. Businesses with less than 10 employees represent 74 percent of all businesses in our area. Increasing the number of employees only makes this presence larger. We play a key role in the canopy, lungs, roots, and fungal system of our forest. Providing the Kawarthas with a temperate zone in which our community’s beauty and living standards are based on.

Collectively, we are the single largest employer and service provider. The most likely to volunteer, support our local media, arts, culture and sponsor the local soccer team. We do this not from a grand vision for our community but through small tasks that are harnessed by the eighth wonder of the world.