For better and worse, we crave a way to benchmark our progress against others. We are often quick to compare ourselves to figure out if we are “on track” relative to our peers.
However, absolute comparisons are a lose-lose situation. If you are behind your peers, you will feel disappointed in yourself. If you are ahead of your peers, you may become complacent.
We are all told to focus on ourselves and ignore others, but that’s often impractical advice that’s difficult to use. But what if I told you there’s a much more effective (and healthy) way to use comparisons to motivate yourself.
Before we get there, we have to look at a finance concept called compounded annual growth rate (CAGR) that measures the revenue growth of a company year over year. Fascinating right? Kidding — but stick with me.
Suppose a company does $100M in revenue in year 1. At the 20% CAGR, this is what their annual revenue looks like after 10 years.
Those of you not familiar with compounding may be surprised by how much the revenue increases over 10 years: $100M -> $500M+ is a big jump.
While the 20% growth rate never changes, the annual growth in actual dollars increases due to compounding. Compounding means that Year 2 revenue grows 20% more than Year 1. Then, Year 3 revenue grows another 20% relative to Year 2. And so on…
20% of the first year’s revenue is $20M, however by the time we get to year 9 the company’s 20% CAGR is actually contributing $86M to the company’s revenue.
That is the magic of compounding.
Some claim that Albert Einstein once said “compounding is the eighth wonder of the world”. And whether or not he actually said that, I believe it is 100% true.
Who cares about compounding, CAGR, and company revenues?
This article isn’t intended to give you a lesson on finance. Rather, it’s to apply a core principle of finance to vastly improve your potential.
So what do you focus on instead? Your learning CAGR.
Rather than comparing yourself on an absolute basis to others (she is better than me at ___ ), invest your energy on increasing your growth rate — or in finance terms, your CAGR.
I believe it doesn’t really matter how good you or any of your peers are when starting something new — whether that’s a new job, a hobby, a sport, etc. What matters 5 or 10 years later is how quickly you were able to learn and grow.
Let’s substitute revenue for something called knowledge points, which measure one’s expertise and development in a subject, field, profession, etc.
Suppose your peer starts with 100 knowledge points. As an ambitious person, your peer compares herself to her peers, realizes she is already ahead of the game, and continues to grow at a reasonable 20% CAGR.
On the other hand, let’s consider 2 alternate scenarios for yourself:
In the first scenario, you literally start with half the knowledge points of your peer (50 points) — she is much better than you from the onset. However, you focus on learning and grow at a 30% CAGR — a bit faster than your peer.
In the second scenario, you start with a small disadvantage relative to your peer (75 points). However, because of your focus on learning you are able to grow twice as quickly as your peer.
In scenario 1, you are close to the same level as your peer by the end — despite starting off with a massive disadvantage.
In scenario 2, you are in another league by the end.
You will maximize your potential by focusing on your learning. And because comparisons are so hard to let go, try to learn secrets from others on how to learn faster. That is a win-win comparison.
An easy way to start this daunting, life-long journey is to train yourself to constantly ask, “how can I learn faster?”
Some simple ways of doing this are to seek challenging and diverse experiences, read books and articles on new ideas, ask for feedback about your performance, and talk to people who know something you don’t.
There are millions of ways to learn faster, and as a result millions of opportunities to grow your learning CAGR.
While I will attempt to discuss the most important ways to expedite your learning in future articles, I will never get to them all. The only way for you to have a fighting chance of dramatically increasing your learning CAGR is to constantly ask yourself the following:
“How can I learn faster?”
In the long run, I believe that introspective question will make all the difference.