The Power of Compounding Small Daily Decisions

In Business Blunder, Intelligent Fanatic by Sean Iddings0 Comments

“Haba na haba, hujaza kibaba”

[Little by little, the pot gets filled]

Swahili proverb

The beauty of learning directly from intelligent fanatics, through their stories, is that the intelligent fanatic often provides the source of inspiration for their great ideas. Ian and I have found that these ideas often come from great leaders that came before them. Intelligent fanatics take these ideas, put their twist on it, and execute them on a whole new level.

I came across one phenomenal example. The intelligent fanatic will remain nameless, as we’ll be providing a full detailed case study on this individual and their organization soon, however, I’ll recount their lessons learned from Charles M. Schwab, the steel magnate who led Bethlehem Steel.

You will observe a number of important lessons: First, that daily, little decisions compound over time. Second, that an organization that operates on lavish praise with all employees most likely will succeed. Third, it’s important to have skin in the game.

I’ll also highlight the decline in Bethlehem Steel. The company lost all of those qualities while the fanatic led organization held tightly onto those values and remains today.

Story

Charles M. Schwab had made his fortune with Bethlehem Steel Corporation, the largest shipbuilder and second-largest steel producer in America at the time.

In 1918, Bethlehem Steel Corporation’s President Eugene Grace stated at a special stockholders meeting that the company’s plants were turning out a record amount of steel. He said, “Bethlehem Steel’s revenues for the year have reached $400 million ($6.5 billion in today’s dollars). We estimate gross business will run close to $500 million in 1919 as the company works through orders amounting to $650 million.”  You wouldn’t expect that Charles Schwab would be looking to improve his operations even more, but like other intelligent fanatics he was dogged in his pursuit for improvement. Thomas Edison famously called Schwab a “master hustler.”

In that same year Ivy Lee contacted Charles Schwab and said, “I can increase your efficiency and sales – if you would only allow me to spend fifteen minutes with each of your executives.”

Naturally, Charles Schwab was interested and asked, “What will that cost me?”

Ivy Lee might have been the father of corporate public relations, but he understood the power of having skin in the game. “Nothing,” Ivy said, “unless it works. In three months, you can send me a check for whatever you think it is worth to you. Fair enough?”

Of course Schwab thought that it was fair enough. Ivy Lee spent fifteen minutes with each Bethlehem Steel executive. In those short meetings Lee exacted only a promise from each executive to accomplish over the next three months:

  1. At the end of each work day, write down the six most important things you need to accomplish tomorrow. Do not write down more than six tasks.
  2. Prioritize those six items in order of their true importance.
  3. When you arrive each morning, concentrate only on the first task. Work until the first task is finished and scratch it off when it’s finished.
  4. Just work your way right down the list. At the end of the day, move any unfinished items to a new list of six tasks for the following day.
  5. Repeat this process every working day.

At the end of the three-month period, efficiency had increased to such an extent that Mr. Schwab sent Ivy Lee a check for $35,000. 

The un-named intelligent fanatic who recounted some of the story above took the six most important things list to the next level in their organization. The leader did the list religiously and inspired everyone throughout their organization to do the same everyday. The reason was because the fanatic believed in the power of compounding. The little, daily decisions compound over time and are the difference between success and failure. This company quickly achieved $10’s of millions in revenues and fifty years later was posting record results.

Those who have read Dale Carnegie’s How to Win Friends and Influence People will recall that Carnegie wrote extensively about Schwab’s ability to arouse enthusiasm in his people by being hearty in his approbation and lavish in his praise.

Included in Schwab’s management style was competition. Carnegie recounted a story of how Schwab turned around a poorly performing mill. He merely asked the manager how many heats the mill did that day. The number was six. So Charles Schwab chalked a large number six on the mill floor, and walked away. The night shift workers found out Schwab had wrote it and what it meant. The night crew rubbed it out and wrote seven after having run seven heats. The morning crew arrived and felt they could out-do the night crew, and did with 10 heats.

“The way to get things done is to stimulate competition. I do not mean a sordid, money-getting way, but in the desire to excel.”

Charles Schwab

Bethlehem Lost its Way

The culture of doggedness, competition and “hearty approbation and lavish praise” left Bethlehem Steel when Charles M. Schwab and his executives were gone. After World War II, U.S. steel industry faced little foreign competition and resisted modernization. Foreign firms adopted modern techniques such as continuous casting, and Ken Iverson’s Nucor had devolved other techniques that reduced the cost of steel production significantly lower than the Big Steel companies.

As intelligent fanatic Ken Iverson stated in his book Plain Talk: Lessons From a Business Maverick, Bethlehem Steel’s CEO and chairman Curtis H. Barnett received a 37% raise despite a $309 million loss in 1996. Management had for years been divorced from ownership allowing mediocrity to pervade. Short-term profits were the main focus. And instead of praise and competition, Iverson wrote:

“Bethlehem Steel executives bought themselves a beautiful golf course with corporate funds. There was some grumbling from the ranks, so they built a second course for middle managers, and eventually a third course for employees. Imagine building three golf courses just to remind everyone where they fall in the corporate hierarchy! What does that that say about a company’s values and corporate culture?”

It says that Bethlehem Steel’s values and corporate culture had radically changed since Charles M. Schwab’s tenure. Bethlehem Steel did lose its way and eventually filed for bankruptcy in 2003.

Take the best from intelligent fanatics and improve upon them. That’s how they do it.

And be relentless in executing on small daily decisions. Doing so unlocks the power of compounding over the long term.

About the Author

Sean Iddings

Twitter

Sean is the founder of Unconventional Capital Wisdom, a registered investment advisor in New York State seeking to invest in high quality microcap companies led by intelligent fanatics. He is a member of MicroCapClub and writes about investments, entrepreneurship, and leadership on a number of blogs and publications. Sean is also a long distance runner having completed five marathons across the globe and a jazz/rock guitarist. He lives outside Ithaca, NY with his wife and daughter.

Leave a Comment