There are many ways to make plans to improve your business (improve = make more money). You can create goals, set priorities, flesh out your businesses strategy, etc.
While all of these approaches are useful, and will certainly help you identify more to-dos than you can handle, I’ve found that focusing on removing constraints creates a kind of complete clarity on “how to get from point A to point B” I can’t get any other way.
The Theory of Constraints and Your Business
For those unfamiliar, the theory of constraints was developed by Eliyahu M. Goldratt and made popular by his book “The Goal” in 1984. A constraint is “any element or factor that prevents a system from achieving a higher level of performance with respect to its goal.”
Obviously, the goal of your business is to make money. Viewing your business as a system of processes, what is holding you back? What internal or external resource, person, or process is preventing you from making more money?
In every business, there is something. It may be funding, qualified employees, effective advertising, unreliable software, etc. Focusing on constraints is about identifying the bottlenecks in your business that are slowing the output that brings money back into the business, then trying to find a way to fix the constraint with existing resources, and, if that fails, finding a way to remove the constraint altogether. Once the constraint is removed, the flow of money increases.
How Does it Work?
For instance, in your business the constraint may be the amount of traffic your company website receives. This is the constraint because it is what is keeping your carefully honed sales copy from converting more people into customers. Delivering on your promises isn’t the issue because you’ve developed a scalable business. It’s just a matter of driving more people to the website.
STEP 1: Once you’ve identified the constraint, figure out exactly how to get the most out of it in its current state. Without throwing additional resources at the constraint, is there anything you can do to increase output?
Using our example, you could try to further increase conversions with existing traffic. As mentioned, your copy is converting well and any improvement there will yield diminishing returns so it’s probably not the best use of our time so we proceed to step 2…
STEP 2: If you can’t do anything to eliminate it, or raise it to the point where it is no longer an issue, figure out what other resources in your business could be applied to the constraint. You may have to take resources off of another area of your business to do this but it is necessary. Increasing output here will help every process that occurs further down the line.
In most businesses time is one of the most limited commodities. Should you take people off other projects to focus on bringing in more traffic to the website? If not, or if this doesn’t solve the problem, move to step 3…
STEP 3: If you don’t have the resources to eliminate the constraint, you may have to add something into your business that takes care of it. This probably means spending money. What you need to decide is: Will lifting this constraint bring in more money than what I am spending to lift it? Most of the time, if you’ve truly hit upon the right constraint in your business, the answer is an easy, “yes.”
You may need to hire an internet marketing firm or a consultant that specializes in creating targeted traffic. Yes, it will cost money, but if the problem can’t be helped internally, this is the only answer.
STEP 4: Find the next constraint in your business and repeat steps 1-3 continually.
After there is plenty of traffic coming to your website, you may find that the next constraint is how many of your customers are making repeat purchases so you’ll start with Step 1 again… and so on…
As you can see, running through this process even just once or twice a month would quickly lead to a much more profitable business.
Now, constraints can be many things so don’t get stuck thinking of it any particular way:
- Paradigm constraints are beliefs that are holding you and your business back.
- Policy constraints are those rules that keep you from fully tapping available resources.
- Physical constraints are basically those things that determine your capacity to produce (employees, machinery, software, etc.).
- Money constraints are perhaps the most common (funding, cash flow, credit, etc.)
In fact, there are probably many other types of constraints – it’s anything that limits you from taking your business to higher levels. Heck, it might be how much stress you are feeling or how much sleep you get at night. The great thing about this process is that it doesn’t matter, you can address anything with it.
So why aren’t you making more money?
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