Taylor Pearson

...

Taylor Pearson

The Four Limits of any Business

In the previous article we covered what the Business Strategy Framework is, and how Eli Goldratt’s Theory of Constraints shows us how we can identify the areas of your business to direct resources to improve.

In this article we’re going to break down these four limits identified previously, and talk about ways to go about fixing each one. After reading about this relatively simple breakdown, you’ll go away knowing where to look for information in order to fix just about any problem that is keeping your business stuck.

Personal Operations

The first bottleneck for many founders is what I call personal operations. I break personal operations down into three sub-categories: task management, priority management and knowledge management

If this is your bottleneck, you’re thinking things like:

  • How do I keep from letting things fall through the cracks?
  • Why do I keep missing meetings?
  • I feel overwhelmed by reactive work like emails and meetings
  • My priorities are rapidly changing and I can’t seem to complete any of the projects I’m working on before something else comes up
  • Didn’t I do something like this a couple of years ago? Where is that file?
  • Should I be using Evernote or some other note taking app? If so, how should I organize it?

Task management – At the most basic level, this means an ability to do what you are going to do, when you say you are going to do it. 90% of people struggle to do this and by just clearing this hurdle, you are probably top 10% in your field.

Task management includes things like:

 

Priority management – If task management is the ability to take incoming data and request and transform them into tasks that get done, then priority management is the ability to not just complete tasks, but to prioritize them based on bigger business objectives.

While most jobs require people to be reasonably good at task management, many do not require priority management. Priorities are dictated from above with relatively little latitude for autonomy. I’ve found that people who move from a less entrepreneurial environment (usually school or a large company) to a more entrepreneurial environment (freelancing, starting a business, working for a small business or startup, working at the fringes of a large organization, etc.) fall prey to shiny object syndrome – chasing whatever the latest idea is – and end up not completing projects.

Priority Management Includes things like:

 

Personal Knowledge Management

If priority management is the ability to prioritize tasks into projects based on bigger business objective, then personal knowledge management is the ability to take the learnings and outcomes of those projects and convert them into  re-usable intellectual property.

Personal Knowledge Management focuses on processing new information in a way that allows it to be translated to usable knowledge and eventually into career-advancing outputs. I learned about personal knowledge management from taking my friend Tiago Forte’s course Building a Second Brain.

Personal Knowledge Management includes:

Everything listed here is by no means exclusive to people working in early stage companies, but  are generally useful work skills. Lots of founders seem to get by without many of these skills for quite a while, but my experience has been it eventually catches up with them so having them in place lays a strong foundation.

Helpful Books at this stage:

Marketing/Sales

The next bottleneck is typically marketing and sales and is all about making sales (and getting to Product/Market Fit along the way). The most common mistake among first time entrepreneurs is an insistence on getting all their “ducks in a row” before going out to (aggressively) market and sell their product or service.

The truth is that selling your product or service is the best way to not just generate revenue but also get your ducks in a row. For one, nothing is more motivating than knowing you have to give back money if you don’t deliver. But more importantly, the act of marketing and selling forces you to constantly be thinking about and talking to potential customers. That shortens the feedback loops, allowing you to iterate and improve on your product faster. It also generates the revenue and momentum you need to hire others to manage the day-to-day operations of the company.

If this is your bottleneck, you are thinking things like:

  • How do I get to product/market fit?
  • How do I reach my customers?
  • Does my Unique Value Proposition resonate with my target market?
  • How can I generate more revenue from existing customers?
  • Why aren’t my leads converting into customers?
  • How do I establish a consistent pipeline of qualified leads?

The three elements I typically look at are the Economics, Conversion, and Traffic, what marketing guru Perry Marshall calls the Tactical Triangle.

source

The idea of the Tactical Triangle is that in order to sell something, you have to get Traffic, then Convert that traffic into sales. You need to make a profit on what you sell, which is the Economics. When you make that profit, you reinvest in getting more traffic, which converts into sales in a virtuous cycle.

This is marketing and sales 101:

  • Traffic: Who would buy this?
  • Economics: Can you reach them at a profit?
  • Conversion: Can you convince them you can solve their problem?

The way to improve your marketing and sales system is to ask: What’s the biggest bottleneck – Traffic, Conversion or Economics? That’s where you should focus your attention.

Traffic – Traffic means getting people through the door (literally or metaphorically). The main components of traffic are determining who you are targeting (who would buy this?) and how you are going to reach (how are you going to reach them?).

This includes things like:

Economics – When I ask people what they think the bottleneck in their marketing and selling systems is, the most common answer (almost always in fact) is “traffic.” However, the correct answer (if you’ve never asked it before) is almost always “economics.”

Think about it. If your customer lifetime value (CLTV) is $10, then you have very few distribution channels open to you. You’re definitely not going to buy a billboard and you probably can’t acquire traffic profitable through any channel other than word of mouth and referrals.

If your CLTV is $10,000, then you can use almost any distribution channel. The importance of economics is self-evident for bootstrapped businesses because they need the profit to keep operations running, but it’s equally important for venture-backed companies to have good unit economics, even if they are burning money.

Improving the economics of your business consists of things like:

Conversions – If the economics of the business are good, the next step is typically to work on better converting leads into buyers. Similar to economics, many businesses neglect working on their conversions to focus on traffic, but by optimizing conversions and economics first, the value of each additional visitor increases.

This includes things like:

See also Case Study: Growing a B2B eCommerce Business 527% in 18 Months

Helpful Books for this Stage:

 

Business Operations

The next bottleneck is business operations. At this point, a business typically has product/market fit but is having trouble scaling. I find this to be a particularly common problem with fast-moving founders.

I use an assessment with clients I work with called the Kolbe A Index which measures their natural work style. The dominant pattern I find is that most founders and managers at high growth companies are high on what Kolbe calls “quick start” and “fact finder” but low on “follow through.” Here’s a pretty typical example:

Kolbe A Index Profile. There is a Fourth category called “Implementor” which I have left off because I don’t find it very useful.

This leads to the business looking something like the manufacturing line where instead of documenting how the work at each station is done and hiring someone to consistently do the work, everyone on the floor rushed to whatever seemed most urgent. Projects get off the ground quickly and gain traction, but frequently end up back where they started – on the ground.

Viewed through the framework of Goldratt’s Theory of Constraints, there is a pretty clear bottleneck: Follow Through, which tends to translate into a lack of systems in the business.

If this is your bottleneck, you are thinking things like:

  • How do I get out of day-to-day operations?
  • Why can’t we get a consistent quality of service to our customers?
  • If we got a huge influx of sales, we would be stressed to the max
  • The business is growing, but this doesn’t feel sustainable
  • I’d like to be able to sell my business at some point but I’m too essential right now.
  • I feel like I’m spending a lot of time keeping things together rather than moving them forward

Automate – The first and best way to improve systems is through automation. Software works 24/7, predictably and cheaply. Any systems in the business which can be (profitably) automated should be.

Automation includes things like:

Document – For those tasks where automation isn’t feasible, the next step is to clearly document the processes in a way that passes the “off the street test.” That is, could someone who has the basic qualifications for their role, be that an electrical engineer or social media manager, read your documentation and complete the task successfully.

Document includes things like:

 

Outsource –  Once you have the basic documentation structure for the business or business unit set up, the next bottleneck is to outsource those tasks which can be done more efficiently by a specialized contractor.

Outsourcing includes

  • Use sites like Fancy Hands and Fiverr provide general outsourcing help for administrative tasks
  • Hire specialized outsourcers using marketplaces like Upwork and Freelancer have a huge category of specialists.

Helpful books for this stage:

 

Hiring and Management

When a business has a good marketing and sales system in place and established processes in their operation, the bottleneck typically shifts to hiring and management. Getting your business operations in place is about maximizing the leverage of a single team member. Once that leverage is achieved through automation and outsourcing, the next stage is to bring in additional team members to take advantage of it.

Hiring – The first step for going from a good to great company is getting the right people on the bus. That means developing systems for attracting, vetting, onboarding and training new team members.

Hiring includes things like:

Culture – After AirBnB closed their Series C round with Peter Thiel in 2012, they invited him to their office and asked him what was the single most important piece of advice he had for us. He replied, “Don’t fuck up the culture.”

This isn’t what you would expect from someone who just gave you $150 million, but in Thiel’s experience, it’s the biggest factor in success.

One of the common mistakes that happens at this stage is that the founder or managers try to micromanage too much. Having specific documentation and checklists for some things is great, but at this stage, founders and managers need to rely more on communicating a mission and values then letting the team have greater latitude to operate.

Culture includes things like:

 

Managing – Many people who haven’t studied management or have a lot of experience think that management means assigning tasks to people in Trello or holding team meetings. If you read someone like Peter Drucker(who pioneered the field), you will see that management is something much more broad, an understanding of how to use the resources of the business, in the most efficient way possible.

This includes things like:

  • Establishing Key Performance Indicators (KPIs) for each team member
  • Creating a KPI Dashboard to be able to monitor the business as you step out of day-to-day operations
  • Establishing Communication Working Rules – who meets with who, how often and what is discussed? What is the balance between 1-on-1 and team meetings? Do you do regularly (e.g. every 6 months) employee reviews?
  • Finances – Do you have clean, up-to-date books? Do you do forecasting and budgeting? Do you have a business emergency fund in case something happens?
  • Improving your Decision Making – Now that you are in charge of a substantial amount of resources, do you have the heuristics, processes and systems to consistently make good decisions?

Helpful books for this stage::

Conclusion

This framework is not perfect and the list is not exhaustive by any means. Whole books have been written about each bullet point in this list and their are entire fields of study about each of the sub-category.

Yet, it’s proven helpful for me as a starting point for analyzing pretty much any business.  All models are wrong, but some are useful as they say. I’ve found this is a great complement to the quarterly planning system. Every quarter, I can look at a business and analyze the bottleneck again, allowing me to consistently focus on the highest leverage task.

Do you struggle to prioritize the most important things that need to get done?

Do you wrestle with trying to figure out which “best practices” apply to you and your business?

Are you lonely working by yourself day in and day out without being able to talk to someone who really gets the crazy life you live?

Or even if you work with a small team, do you feel isolated and like you have to keep it together for everyone?

Maybe you have some challenge or opportunity in your business that you know you need to solve or seize. Yet, somehow, it keeps getting pushed to next week, next month, next quarter or next year.

What if you could wake up — tomorrow — and find yourself fully supported by a trusted mentor with proven advice and a close-knit community of people building their businesses and careers?

If you’re ready,  I have just launched MOMENTUM, a group coaching program.

The MOMENTUM program is a 6-month business growth program for you (and three friends you haven’t met yet) that focuses on helping you make the biggest impact on your business, in the least possible time and with the least possible headache.

You’ll be guided to use the production framework to choose a goal that will generate or save at least $15k in the next 12 months and attend regular calls and check-ins to keep you accountable and solve any problems that come up.

For the last five years, I’ve been working with entrepreneurs, startups, and freelancers to make sure their businesses work better – for them, their teammates, their customers, and their communities.

In that time I’ve helped clients triple their business, launch new product lines and leverage systems to make more money while working less.

The MOMENTUM program will bring that proven framework to a small group setting to help freelancers and early-stage entrepreneurs get to the next level.

The program will begin in February and be limited to eight participants (two groups of four people each). There are five spots remaining as of this writing.

You can read the details about how the MOMENTUM program works and apply here. If I believe you are a good candidate for the program based on your application, we’ll have a 15 minute(ish) no-cost, no obligations call to determine whether the program is a fit for you and you are a fit for the program.

© Three Magnolia LLC