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Churn is costly everywhere
Many kinds of compounding
The goal of financial compounding is ultimately life flexibility, and other kinds of compounding are equally powerful. Learning compounds very significantly. Relationships compound over time, friendships especially. Reputation compounds too. The principles are the same across all of them: avoid churn, keep investing in order to benefit from the compounding, and start early, because the earlier the better, just mathematically.
The Starbucks example
A venture firm's Starbucks investment shows the stakes. Trinity Ventures probably sold most of its shares around the IPO, and Starbucks kept accelerating while it was public. Staying in would have meant a bigger multiple on capital, but the larger loss was all the learning that would have built up from sitting on that board and being around those people for the next decade.
Learning comes from relationships, and the people who act as factories for ideas are the ones worth being around. Extending the duration of those relationships keeps both the multiple and capital gains and the learning flowing.
Why does starting early matter so much?
Compounding grows the base on which later growth is calculated, so most of the growth arrives late in the period. A rule of thumb called the rule of 72 says that dividing 72 by the annual growth rate gives the years needed to double. At 8 percent that is about nine years, so a long start collects extra doublings. At 8 percent a year, a sum multiplies by about 2.2 times every ten years.
Why do relationships matter over decades?
The Harvard Study of Adult Development has followed participants since 1938. Its researchers reported that the participants most satisfied in their relationships at age 50 were the healthiest at age 80. The study has also followed the participants' children. Its directors have described the quality of close relationships as the strongest predictor of later happiness they found.
How did Starbucks keep growing after its IPO?
Starbucks went public on Nasdaq in June 1992 as a regional chain based in Seattle. Over the following decade it expanded across North America and into other countries. Its store count grew into the thousands within ten years of the offering.
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