The Most Important Business Discovery of the 21st Century The Theory of Constraints
The Theory of Constraints is a management philosophy that views every business as a collection of systems. Its key tenant is that every business has one and only one constraint which stands in the way of success. Learn how to identify your constraints and focus on them.
What do college physics, net income, and Israel have in common? And how do they relate to your business? Truth is, they all extremely relevant to you and your business. You just don’t know it yet. And that’s exactly what I’m going to show you in this article. But before I do, I’m gonna let you in on a little secret. In fact, it’s a dirty little secret that many don’t want me to share with you. Your competitors don’t want you to know it. But I’m going to share it anyways. But don’t tell anyone else. Promise? Ok, read on.
Michael Gerber is a very successful author and speaker. He wrote the famed “E-Myth” book. You’ve probably read it, or at the very least, you’ve heard of it. He’s the smart guy who developed the thinking about “working ON your business” rather than simply “working IN your business.” This is a strategy which many now call systemization. That’s not the secret I referenced earlier. So hang in there and keep reading.
I found that book to be a very effective resource for my own businesses. After all, I own a private equity firm where I buy companies for a living. I’m always in hunt mode looking for that extra edge that will move the needle in bottom-line profitability, as well as the predictable, repeatable growth of the same.
The Dirty Little Secret Of “Working On” Your Business
But there’s a big problem with that book. Which is the dirty little secret. “E-Myth” is missing a key piece of information. You see, applying systemization to your business is only half of the success story. Here’s why. Systemization is the science of creating predictable, repeatable results with processes. Or at least that’s my definition of it. Pragmatically, you have to write stuff down so that everyone in your business knows what to do and how to do it, even when you’re not there breathing down their necks. Think Owner’s Manual for your business.
What systemization does not tell you is the ranked order priority of those systems. And that, my friend, is a major problem.
You see, there are quite literally dozens of systems that hold your business together so that it makes money. And most importantly, not all systems are created equal.
Some systems are 50 times more valuable than other systems in your business. As a silly little example, the system you have for ordering toner cartridge is not nearly as important as the system to generate new leads from Facebook ads.
You ‘get this’ intuitively. But what is not so intuitive about this idea is the financial impact this has on your business. I know this because we systematize every business we buy. There are, on average, about 75 processes that comprise the operating model of each and every business we buy. There are several bottlenecks in that group of systems. But there’s only one constraint. The bottleneck of the bottlenecks.
Once you’ve identified your business’s constraint, attack it with a vengeance.
Put a name to the face of that enemy in the form of a metric. Examples are widgets per minute, profit per day, defects per order, referrals per week, refunds per month, new hires per quarter, etc. The TOC Checklist
So, you probably want a checklist for TOC. And I don’t want to disappoint.
Step 1.) Make a list of every major business system you have.
Step 2.) Identify the single constraint that stands in the way of you meeting your goals in your business.
Step 3.) Subordinate your entire business to that constraint so that it becomes the focus of your improvement efforts.
Step 4.) Repeat.
No don’t just read this and move on, take a moment to identify your own constraint and attack it full force with a vengeance.
Content sourced from GKIC’s No BS Newsletter written by Dr. Mike Lorence. For a full copy and the diagram drop a line.