Author: ashokkorwar

‘All I want is .01% of this huge market, it is billions and billions of dollars big’ – is a very common fallacy. If you aspire to 0.01% of anything, you will get 0.0%. Why? Because, in most markets, the top 2-3 players take up most of the market share and leave nothing for the rest.. If you wanted a soft drink, would you really look beyond Coke and Pepsi? If you wanted a cloud hosting service, would you really look beyond Amazon and Azure?

The aim, then, should be 20% market share. How is that possible? What you need to do is define the market such that you can aspire to 20% of it..If you want to be, say, 100 crore, define the market to be 500 crores, then you can be 20% of it.

A few examples will help make this clear.

1. A small company one of us spoke with, was in the business of real estate. Well, real estate in India is a big market, and people struggle to make money in it, as did the person we spoke with. It was only when he decided to focus on building and managing hostels for students that he began to grow.. and grow and grow.. now he is eyeing the US market..
2. Another company one of us spoke to, wanted to excel in open source software. Which is well and good, but open source is a big, big field and there are many big companies in it.. we advised him to focus on one open source software, and he decided to focus on Drupal – pretty soon, he has established himself as a leader in Drupal software, was able to hire a team to master Drupal – now, anyone who wants to build anything on Drupal or maintain or upgrade systems on Drupal, thinks of him.
3. This company was in tourism – also a big and competitive space.. on our advice, he focused on US universities sending students on study tours and exchange programs to India – now, any US university who wants to do it, and many do, call him first.

What does focus do for you? Very simply, it makes you the one to call.. and you can build up expertise in it, and keep increasing your lead over everyone else, as you continue to learn more and master the issues and challenges of the domain.

We always bring up the lesson from Shivaji, who chose to fight the Mughals, not in the open plains, where the infinitely superior numbers of the Mughals would have overwhelmed him, but in the hills of the Sahyadris, where numbers don’t matter, since only a small troop of soldiers can get through any given path, and where his knowledge of the terrain was infinitely greater. Choose your battlefield wisely, to suit yourself.

A cursory survey of Inc’s fastest growing small companies list will show you that focused companies grow the fastest – from companies that provide a platform for coffee growers to sell directly to end-users, to mattresses, to companies devoted to buying back your e-waste and recycling it.

The example of Documentum discussed in Geoffrey Moore’s Crossing the Chasm, is worth studying in this light.

Documentum was a company with a solution for document management. Now, who doesn’t need document management? Everyone needs it. So they were sitting on a good product in the proverbial ‘billion and billions’ sized market. Trouble is, they had hardly any revenue, or traction.

Until they chose to focus on the department in pharma companies that deals with regulatory filings.. not even pharma companies, the specific department that deals with regulatory affairs – they handle millions of documents, and put them together in a proposal to win approval from the FDA, for instance. It can take months just to put together the documents, and every day’s delay is costly – not only does it delay the launching of the drug itself, but as soon as you file for your drug, everyone else’s goes to  the bottom of the pile. If you delay, it will take you years to get to the top of the pile again, by which time the market will be saturated by someone else.

By focusing on this special need, Documentum was able to grow from $2 million in revenue, where it had been struggling for years, to $8 million, then $25 million the next year.. spreading like wildfire, not only from pharma company to pharma company, but downstream and upstream as well, to vendors, to shopfloor systems, eventually to the derivatives trading desks of financial giants!

By focusing, you can demonstrate to your clients that you understand their specific problem, are committed to solving it, and will get better at it.

 

Frequently Asked Questions:

1. But isn’t it dangerous to focus? what if the market goes away? what if some large player enters the market with much more marketing muscle?

Yes, it is risky.. all these things could happen. You should grow as quickly as possible so you can fight off these intruders, and put your roots down deep enough that these storms cannot topple you.

Anyway, what choice do you have? Do you think you can compete with Microsoft (who, by the way, is probably the only company to actually be the solution for everyone.. nobody else has achieved this feat before or since..). You are struggling anyway, isn’t it better to take a chance and dive in?

 

 

 

By paying attention to corporate governance, you can lay the foundations to build a strong company culture in the years to come.

1. Publish audited financials even if nobody requires you to. There are two reasons to do this – one is to reassure your customers and investors that all is well in your company. The other is to build the habit of transparency and openness you will need to build the organization for the future. At Persistent Systems, Anand began publishing audited financial reports long before he was required to, for both reasons cited here.
2. Create a Board even if company law doesn’t require you to. As CEO and founder, you may be accountable to nobody. It is a heady feeling, but also dangerous if you want to build a lasting legacy. Having a Board to report to, will make you accountable to someone. Of course, you should be the Board Chair, we are not suggesting you give up control – but you should have a Board and hold Board meetings regularly and seriously – none of this ‘shall we proceed for lunch’ kind of Board meeting.
3. Think of your responsibility to the community from day 1 – Persistent began a CSR operation long before the government mandated it. The CSR should be real and serious, not just giving money to your old school!

 

Frequently Asked Questions:

Q: What kind of people do I want on my Board?

A: The kind of people who can be a good sounding board – sometimes it is good enough just to have someone you can speak out your heart to – they dont even have to tell you anything – the act of telling them about it will suggest solutions to you, clarify your thoughts.

Q: Do they need to be experts on something?

A: perhaps it helps if someone is an expert on Finance, on Marketing, Operations, whatever – then they can give you specialized advice when you need it. But a company’s issues seldom fall into neat buckets, so Directors shoudl be able to see the forest for the trees. Having a Board member who goes to sleep and wakes up just when his or her topic is being discussed, is not the kind you want.

Q: But who will agree to be on my Board? I am not exactly Infosys!

A: You would be surprised. Very few people would refuse to help you if you ask for help. The world is full of people who have accomplished whatever they wanted to in life and wecome the opportunity to help someone else, someone who, perhaps, reminds them of themselves! Never underestimate the desire of people to help. Our advice would be – think about who you want on your Board, find a way to reach him/her, with a credible approach and ask! What is the worst that can happen – he/she can say No! You would be no worse off than you are now. It is true, however, that people currently employed in organizations need to get clearance from their Board to be on your Board, there could be potential conflicts of interest. We have found it easiest to ask someone who is either retired, or is an independent operator, they dont have to ask permission from anyone. Nowadays, having one woman member on the Board is a must – you may as well get one now before it becomes mandatory. Then you can get someone you really want. Avoid tokenism in this – there are enough and more women who can and will contribute as much as any man to the Board, you should not be looking for a ‘token woman’. She will resent it, and so will the others on the Board, which will not help you at all.

 

 

 

 

 

 

 

 

We shall not discuss here any of the usual topics of how to increase employee engagement, how to control attrition, how to fit people to roles – we expect your HR people know this stuff. What should you, as CEO/promoter, be concerned about?

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Case:

When Polaris was still very small, 20-30 crore in revenue, the promoter (Arun Jain) went out of his way to hire exceptional people at the very top. He placed an ad in the leading business newspaper with the headline ‘If you aren’t making 30 lacs today, no need to apply’ – this was in the mid-90s when a lac was a lot of money! He was signalling that he wanted only proven performers, and he was willing to pay top dollar for them. He did not specify a role or job description – and he hired, not one but, four people in that cadre, without specifying what they would do. He reasoned that there is enough for people to do, they will figure out what needs to be done, and do it.

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Are you willing to hire someone who will be your equal, your partner, not just your subordinate? Are you willing to let someone else help shape the destiny of your company? At this level, that is what good people want – a chance to go down in history.

 

If your vision is exciting enough, the kind of people you want, who want to chase that kind of vision, will come to you! You may not even need to go looking to for them.

Don’t look for resumes heavy with accomplishment – look for people who want to scale the mountain – the mountain doesnt care about your resume! It may even be that you don’t select the team, the mountain will select the team!

At this stage in your growth, you will need to get people as good, as capable, as yourself; more capable if possible.  This is regardless of whether you have identified yourself as the constraint ot not. Growth requires leadership at the top, the more capable the better.

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Exercise: 

In a program, we often play this game: spend 5 to 10 minutes trying to persuade a co-participant (not from your own company) to come work for you. Your goal should be to persuade him that your vision is more exciting than anything he currently has!

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Do not be hung up with titles and grades – if someone wants to be called Most Exalted High Executive Vice President, call him that – what do you care, it doesn’t cost you anything! in fact, a good practice is to let people call themselves whatever they want to – it is all for the external world, anyway – you know what the person is, and what he/she is doing. Besides, it tells you something about the person, what he/she wants to describe himsef/herself as to the external world.

One small company we know bought a Mercedes and parked it outside the office, and let anyone in the office ride it – the message was, ok, now you have the thrill of a Merc, now get back to work! The same company allowed its executives to give themselves whatever title they wanted – if you want to be a VP, fine, call yourself VP. Now get to work!

 

Frequently Asked Questions:

Q: How to manage the expectations of people in terms of compensation, title, promotion, etc.?

A: There are 4 dimensions to manage: Compensation, Grade, Title and Role. These are all different, and each is independent of the other. We get into trouble because we link them for no reason.

Role is what the organization needs – today, I need you to go talk to customers, tomorrow I need you to drive someone to the airport – people should be willing to do whatever the organization needs. Compensation should be tied entirely to market value – if your skills, capabilities, are worth X in the job market, that is what I should pay you. If your skills decline in value, you should be paid less (difficult to do because we make the mistake of linking compensation with grade and role and title). Grade (the internal positioning within the organization) should represent your level of compatence as a professional – your growth in capability should be reflected in your grade. Titles are for other your mother-in-law, so they can be proud of you. Nobody in the company should care what your title is.

Q:  Should the company strive to offer life-long employment?

A:  No. It is not the company’s job to employ you for life, or even to manage your career. It is your career, you should take ownership of it. The company can, and should, offer opportunities – the rest is not for the company to manage. Every professional should see themselves as a ‘MeEnterprise’, not as an employee. As for lifelong employment, how many companies even last 50 years these days? A professional should expect to outlive his employer!

Q: Who in the organization should be responsible for senior-level hiring?

A: The CEO, the promoter. Next to sales, this is the most important job the CEO should take upon himself/herself. Remember, it is about selling the vision, nobody else would be credible doing that.

 

 

 

 

Imagine that you run a canteen service. You want to sell your services to a large IT company. How will you go about it?

Remember, you have to give your prospective customer a reason to give you an appointment – that’s where your elevator pitch comes in! Once you have your foot in the door, you need to tell him or her why you are different – that’s your positioning.

So now you need to actually sell it.

You may not actually make the sale the first time, you may make the pitch and nothing may happen. But that doesnt mean you haven’ t sold it, he may call you back when he needs you. IF he remembers you! Give your customer a reason to remember you. People will usually remember you if they feel that they learned something from you.

So, start by telling him something he doesn’t know – it may be a story, it may be some data on what other companies are doing. The story may be completely unrelated to what you’re actually trying to sell, but if it is interesting or thought-provoking, it will ensure that you have his attention. As a vendor, you deal with companies across several industries. Tell your prospect something that somebody else is doing – it doesn’t have to be in the same industry.  Does some company you know provide only organic snacks, for instance? Does anyone provide dietary guidance? Vitamin supplements?

You could tell a prospect from a credit card company what MakeMyTrip is doing. They may be from different industries, but their customer is the same, they are both selling through the same channels. That’s something that he’ll be happy to learn.

The next thing is to identify your prospective customer’s need. If you’re trying to sell your canteen service, find out if the existing vendor provides round-the clock service. Are there some slots in the day during which there is a need for snacks or meals, but which the existing vendor doesn’t service? Maybe you could meet that need. A need will exist – it’s up to you to find it.

 

Are you talking to the right person? Are you trying to sell canteen services to somebody in charge of IT infrastructure? Remember, the CEO does not usually make these decisions, even in a medium-sized company – he will have a head of administration who will make the decision – but if the CEO sends you to him, he will give you a hearing..

Does he have the budget to buy your service and does he have the authority to spend that budget?  What is the timeline that he needs to make his decision in?

When you sell a product – and this is especially true of products, rather than services – who defines what the product is used for? Is it you or is it your customer?

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Case:

GS Lab created a product called K-Point. K-Point was intended to be a knowledge management tool. However, one of the main uses that its customers found for it was as a powerful support tool for sales engineers in remote locations. Sales engineers found that they could access valuable information – trouble-shooting manuals, videos and so on – that enabled them to fix problems no matter where they were. A sales engineer assigned to fix a tractor in the middle of a desert could quickly look up manuals and watch tutorial videos – all via K-Point. K-Point was never envisaged as a tool for sales engineers, but that’s what its customers were using it for.

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No matter how you may position your product, your customers will find uses for it that you never dreamed of. Find out how your customers are using your product. To my mind, this is the CEO’s job. In a small company, only the CEO has credibility. And only the CEO can make a commitment on his company’s behalf.  Your salesperson may open some doors for you, but it’s up to you, as the CEO, to walk through those doors and close the deal.

Customers too expect to deal with the CEO, especially in small companies. As a CEO, you may think of yourself as a techie, not a salesperson – but, make no mistake, selling IS the CEO’s job.

If you’re not already convinced, here’s another good reason why only the CEO can sell – when you meet a prospect, always leave an offer on the table. That’s something only the CEO has the authority and risk-taking ability to do. Only a CEO can say something like, “Yes, I can do that for you. I can do it for Rs. 20 lacs in the next thirty days.” You may not actually be able to do it, but you have to be able to take that risk and leave an offer on the table. If you make a sales call and walk away without leaving an offer on the table, consider the deal lost.

If your competition is a big company and you are CEO of a small competitor, remember the odds are on your side, if you are willing to be creative enough – the best the big competitor can put up is a junior, harried salesperson who was hired yesterday. How can he possibly compete with the depth and ingenuity you have? The customer understands this too, they would often rather do business with a small company who will give them the attention they think they deserve, than with a big company for whom they are the second decimal place on the P&L.

Of course, your team, which is ultimately going to have to execute your audacious offers, needs to know what you have promised. Always follow up with your team after a meeting so that they are aware of what you have offered the customer.

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Exercise:

Think back to your latest attempt to sell something to a prospect.. did you identify the right person? Did you give him/her some reason to remember you? Did you leave an offer on the table?

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Frequently Asked Questions

Q: But I don’t really like sales, I am no good at it..

A: We always insist that, until the company gets to a certain size, sales is the primary job of the CEO. It cannot be delegated, because, when buying from a small company, customers always want to deal with the promoter, not some minion. Our advice is – grit your teeth and do it.

Anand has this personal story: a major turning point in the history of Persistent came when he realized that, though he was in fact the best techie in the company, it was really sales that he could not delegate to anyone – only when he more or less forced himself to become the chief salesman of the company, did it really begin to grow.

 

Q: How important is it to get endorsed by the Gartners/Forresters of the world?

A: Certainly it helps, if only to establish your positioning. But remember, if you cannot get such endorsements, all is not lost. It is about winning trust and credibility. Any way you can do that, will help. Referrals from other people he knows and trusts, will take you a long way to winning a prospect’s trust.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Right at the outset, it is crucial that you FEEL that growth is possible. VISUALIZE it. Imagine your company is already there – at 50 crores. What does it look like? Can you describe it?

Visualization acts at the level of the subconscious, which is the most subtle and the most powerful part of your make-up. Once the subconscious self accepts and embraces a possibility, it commits itself to making it possible – then anything is possible.

As  the book ‘The executive and the Elephant’ says, we need  to speak to the elephant in its language, which is dreams and visuals, not words and numbers – the elephant being the subconscious self.  The visualization exercise should be as visual as possible, spreadsheets and ppts should be discouraged.. the elephant doesn’t understand them.

CASE STUDY

Polaris Software, the Chennai-based software company, used a powerful visualization process called Lakshya to fuel its growth from 100 crores to 1000 crores. Every year, every single associate met for a day, in sessions led by the founder and CEO, Arun Jain, to visualize what the company wanted to be. No notes were taken, no minutes circulated, no plans hammered out – it was all about visualization, ‘planning at the subconscious’, Arun called it. The result was phenomenal growth, led by people who had already visualized the big things they were going to do, including a number of start-ups that were later spun off, including the HR product company Adrenalin esystems Ltd.

Let us  look at some data on how long some companies took to get to 50 crores. Infosys started in 1981. They got to 50 crores only in 1994 – 13 years later. Polaris started in 1990. They got to 50 crores in 8 years. Persistent started in 1990 and got to 50 crores in 12 years. It does take a certain amount of time. What is equally true is that the first leap from 0 to 5 or 10 crores may take a long time.  For example, it took Persistent about 10 years to go from 0 to 10 crores, but only 2 years to go from 10 to 50 crores! And this is true of the others as well. They went from 5 to 50 crores in about three years. Getting to the 5-crore mark may take you 10-12 years, but the next step – from 5 to 50 crores can be quick if you do the right things. What’s more important is for you to visualize how your business will look at 50 crores. How many units will you be selling? How many employees will you have? How many customers? What businesses will you have in your portfolio? Anything that describes your business.

 

Exercise:

Visualize your business at 50 crores and fill in these figures based on what you think your business will look like then:

What businesses/products/offerings?

How many units sold?

How many people?

How many customers?

How many projects?

How many managers?

How many salespeople?

How does my balance sheet look?

 

Exercise:

Can you draw it? Draw a picture of what your business will be like at 50 crores. Pictures are always more effective than words…

 

 

 

 

 

 

Frequently Asked Questions

1. What is so magical about 5 crore?
2. Nothing, it is just indicative, what counts is where the S curve starts flattening out and you know you need to jump to the next one. It usually happens in the IT industry around this time, but there is nothing sacred about it
3. Does every company need to grow? How do I decide?
4. No, absolutely not. Growth is itself a choice. It takes you down a road you may or may not want to go on, but it is well to know beforehand what lies on the road. It is perfectly normal, and perfectly acceptable, to be comfortable with a small, profitable business forever.

 

1. why should I grow, then?
2. If your company grows 10x, you will also grow 10x, as a person, as a professional. The climber who scales Mount Everest becomes a better climber than one who has never tried.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

we will organize this blog around the following sections:

 

I – Visualize to Realize

II – The Constraint

III – Positioning

IV – Selling

V – People

VI – Finance

VII – Governance

VIII – Misc.

 

 

 

 

 

 

 

 

 

V

Definition – what is a Constraint

Now that you’ve visualized what your business will look like at 50 crores,  you know the goal, and, of course, you know where you are now. The distance to the goal is also clear.The next question you need to ask yourself is, “What’s stopping me?”, “What is the biggest change I’d have to make?”

This we call The Constraint.

For instance, you may need 10 salespeople, while you currently have 0,  or maybe the market around your current location just isn’t big enough for you to grow to that size; maybe you need to operate out of multiple locations. If you try to think of the single biggest factor that’s preventing you from getting to 50 crores, you will get a sense of what your number one constraint is – that’s what you will need to work on. That is the essence of the Theory of Constraints. The speed of your system is determined by the slowest process, not the fastest. Every system has a choke point, a bottleneck; every chain has a weakest link. You have to determine what that is.

Is it the market? Very unlikely! Only Apple may have that problem, because they’ve already sold to everyone on the planet! Typically, the constraint is not outside, it’s within. Now, that may not sound like good news, but it actually is! Let’s say you take an exam – you didn’t prepare for it and you failed the exam. Good news or bad news? Surprisingly, that’s good news! Because it means the constraint is within you and, therefore, within your control. Next time you give the exam, just make sure you’re well prepared!

Three Kinds of Constraints

In general, we can identify three kinds of constraints:

1. Self-image.

If I don’t think I am capable of doing something, that will itself prevent me from doing it. We have found this to be more pervasive in real life than we are willing to admit. How many times have our parents told us – you are too lazy to do anything..a girl cannot be good at Math, you are not as good as your brother..you are the son of a brahmin, you can never be a businessman..

All these create mental blocks, which we do not even recognize. ‘I am not Shah Jehan, how can I build the Taj Mahal’… so you never think of building a Taj Mahal.

 

2. Real-world constraints – these are constraints that are actually out there in the real world, and have to be identified and dealt with.

3. Policy constraints – these are self-imposed constraints, that we, as an organization, impose upon ourselves. These are not real constraints; just mental blinders that we put on ourselves. We call this the ‘Bhishma’ effect. Bhishma took a self-imposed pledge, which rendered him incapable of doing anything. Of course, he did it deliberately. Today’s managers, however, create self-imposed rules that then go on to become unwritten policies. Here’s a very common example of a self-imposed policy constraint – “I can’t pay more than X amount”

 

I need a very good sales person; I’ll need to pay him Y, which is more than I make. That’s something most bosses can’t handle.

Another example – “As CEO of this company, I must see every customer communication.” This is a very common one in small companies. This essentially limits the company’s growth to the CEO’s twenty four hours. He or she becomes the bottleneck. In our experience, this is the most common constraint – the CEO is the bottleneck. He’s the person who decides the growth of the company. The growth is determined by his bandwidth. Since he cannot go beyond his own bandwidth, the company cannot grow beyond the capabilities of the CEO.

It’s very likely that you may find that you are the number one constraint – the person who’s preventing the company from growing because you are restricted by your bandwidth or your capabilities. For example, you may say, “I’m only good at technology; I’m not good at selling. I’m also afraid to hire someone who’s better than me at selling. So my company cannot grow.”

This is a very powerful realization – to be able to admit the possibility that you may be the problem. Once you admit that, however, you are ready to move to the next stage – which is to ask yourself, “Okay, I’m the problem. What can I do about it?”

Identifying your number one constraint is not as difficult as it seems – you really don’t need to do any major research or analysis. You know how your business functions – you should be able to identify the biggest constraint to its growth. Do this exercise along with your team – they also need to understand the constraint.

Some Examples of Constraints

CASE STUDY

1. The CEO, a client, asked the consultant to help him recruit 2 salespeople to expand his salesforce. We asked him, why 2, why not 10? A strange question, but it forced the CEO to recognize that, if he had even 2 more salespeople, they didn’t have much to sell.. his constraint then wasn’t lack of salespeople, it was lack of offerings..
2. Some years ago, we worked with a small company doing excellent work in outsourced product development space.. a few days observation led to the realization that the company’s constraint was that it had 3 founders, which meant there were 3 opinions on every subject.. we immediately figured out a way to demarcate their responsibilities so the company was no longer confused on every subject. A policy constraint, in a way..
3. Why are Professors at IIM Ahmedabad paid less than the starting salaries of their fresh graduates? Is IIMA short of money? certainly not. It turns out to be a policy constraint – somebody decided many years ago, that an IIM professor should be paid the same as a joint secretary in the government..so many IIMs, IIMA no exception, has seen an exodus of faculty to consulting and industry. A simple policy change could have made a difference.

4. Eli Goldratt used to tell this story in his seminars: in working with some hospitals, he realized that the bottleneck was the Operating Theatre (OT) – yet the data showed that OTs were lying unused more than half the time. Why was this so? Because the handlers who had to bring the patients to surgery, were batching their operations..to optimize a relatively inexpensive and unspecialized resource, the constraint was lying idle!

5. A more every-day example: what determines the speed of traffic on a busy city street? Probably the auto-rickshaw in front of you, not the Lamborghini you are driving..it is the slowest of the vehicles that matters, not the fastest..

Frequently Asked Questions

Q: I feel I have many constraints, not just one. Is this normal?

A: You may have many constraints but the limiting constraint is the one that breaks first, the one that will trip you up before the others do. In general, it would be an incredible coincidence if more than one kicked in at the same time, since they are generally driven by difference forces.

Q: How do I find my constraint? Is there a method?

A: No, there is no method. Since you know your business best, you are the best person to identify the constraint. You may need help only if the constraint happens to be you! Two thought experiments you can try: test any candidate constraint by asking – If I double the amount of this, will my business/throughput increase? If the answer is no, it is not your constraint. Whenever a business manager asks for 1 more salesperson, for example, we always ask – why not 2? Why not 10? That forces the discussion of whether the constraint is really sales, or something else altogether… if you had more 10 more salespeople, what would they sell? And so on..

One client, a small firm, is currently going through a planning exercise for the next year, where they are being encouraged to think big, not 10% growth. We find that there is a recurring theme in all the team’s plans: we have sales people, we have clients willing to buy, what we don’t have is people to craft solutions for each client. Bingo! There’s the constraint. One doesn’t have to look too hard.

In a manufacturing plant, of course, the bottleneck is clearly visible, it is the workstation where work-in-process is piling up. If the finished goods warehouse is this point, then the constraint is probably sales, not otherwise.

Alternatively, you can extend the same visualization exercise – when my business grows to 10x, which part of the system will fail first? What do I find it difficult to visualize myself having or doing, at that level?  In any case, the current stress on your system will guide you to the correct answer – for instance, one of my current clients did a very simple business planning experience calling for 40% growth and could not imagine how he was going to deliver the business – there just aren’t enough people of a certain kind. Clearly, that is the constraint.

Q: Can my constraint change over time?

A: Yes, the constraint will definitely change over time. When you have fixed the first one, and the engine hums along for a while, something else will become the constraint, then you have to fix that. In our experience, this will not happen for 2-3 years at least so there is no need to fear being jerked around by the constraint.

Q: If the constraint is one of self-image, what can I do about it?

A: This is a typical challenge of change. The fact that you are capable of recognizing that there is an issue with your self-image, is itself a big step. Only those who are capable of stepping outside their current reality frame to see what they really are, are capable of change. So congratulate yourself on having broken through the mirror and decide not to be bound by the self-image! This kind of change does not take time, it only takes an instant. Holding on to it is a different matter, however – we have to learn to talk to the elephant in its language, again – which is the language of visuals, stories, mantras. Get up in the morning and tell yourself –‘I can fly’, visualize yourself flying, then you can fly. If you want to build a Taj Mahal, sketch it and put it in front of your desk so you can see it all the time .. and so on

Q: Which kind of constraint is easiest to deal with?

A: Policy constraints are probably the easiest – all you have to do is change the policy.. changing your own mind-set is probably the hardest.

Q: What should I, as CEO, focus on?

A: The Constraint! Nothing else is worth focusing on, because nothing else can result in improvement in throughput. Fortunately, the CEO has the luxury of choosing what to focus on, other mere mortals don’t. So take full advantage of it.

Q: Does ToC say I should improve ONLY the constraint? What about TQM then?

A: Logically, yes, there is a contradiction between the two paradigms. TQM tells you to improve everywhere, ToC says there is no point in improving everywhere, 95% of your efforts will be wasted, because only the improvement in the constraint will result in improved performance.. strengthening the links of a chain that are NOT the weakest link, will not strengthen the chain one bit!

There are several such fascinating corrolaries – Finance theory tells us to make an investment in a new machine if the Net Present Value of the investment is positive. ToC tells us that, unless the machine is on the bottleneck, there is no point in investing in it! Conversely, almost any investment in the bottleneck facility may be worth it, because it will have huge impact on throughput.

After Identifying the Constraint

What after we have identified the Constraint?

Dr. Goldratt warns us against rushing to the mrket to buy more of whatever the constraint is – more sales people, more offices, because all that will add cost. Before we go there, he enourages us to:

1. Squeeze the most out of the Constraint – or ‘exploit the constraint in more civilized language. Don’t waste what you have! If the constraint is a particular machine, make sure it is working all the time, not down because somebody needed a break for tea. If your constraints is salespeople, make sure you use them for sales, not for filling out reports or picking up the CEO at the airport! After you have done that,
2. Subordinate everything else to the constraint. Every other function in the company, every other link, must now orient itself to helping this consraint function well – not because it is the strongest but because it is the weakest! Remember, if the constraint fails, the entire chain fails and we lose the entire throughput of the system. If we need to change policies, role definitions, incentives, so be it. If, in Dr. Goldratt’s example of hospitals, it means orderlies have to bring one patient at a time, and spend the entire day going up and down the campus, then that is what they have to do. In the original ToC book ‘Goal’, the protoganist describes his experience leading a boy scout group on a hike. Halfway through, the group realizes they are not going to make it on schedule – they are being slowed down by one kid, who is a bit out of shape, and carrying a heavy rucksack. So what does he do? He has to get someone else to carry the rucksack, since the group cannot just leave the kid behind! This an example of subordinating everything to the constraint.

Needless to say, this is easier to say than do – every organization has a focus, a center of gravity. Subordinating everything to the constraint requires a deliberate changing of the center of gravity. Until now, delivery folks were the kings, now suddenly you want sales people to be uppermost in everyone’s minds – not easy to do! Fortunately, we don’t have to do this headstand every day.. only when the constraint changes, which will not be more often than once every couple years, we hope. Onl after step 2 is done, do we go to step 3

3. Only after all this is done, go and get more. “Elevate the capacity of the constraint’ in civilized language. Hire more salespeople, buy more machines, because you have done all you can wih the resources you have. This will add cost, so it is to be done only after the first 2 steps are thoroughly completed.

It should also be immediately clear that a Constraint is really a lever (a positive word!). A small improvement in the performance of the constraint can have huge impact on overall performance because it immediately results in improved throughput of the entire system.

EXERCISE

My constraint is

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‘Exploit the Constraint’ requires me to:

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‘Subordinate everything to the Constraint’  requires me to

 

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Finally, to ‘elevate the constraint’ ,  I have to

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Exercise:

What’s my number one constraint?

 

What you’ve done so far, then, is to first, visualize where you want to be; second, identify, what it is that is preventing you from getting there. You are now ready to move to step 3!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Frequently Asked Questions

1. I feel I have many constraints, not just one. Is this normal?
2. You may have many constraints but the limiting constraint is the one that breaks first, the one that will trip you up before the others do. In general, it would be an incredible coincidence if more than one kicked in at the same time, since they are generally driven by difference forces.
3. How do I find my constraint? Is there a method?
4. No, there is no method. Since you know your business best, you are the best person to identify the constraint. You may need help only if the constraint happens to be you! Two thought experiments you can try: test any candidate constraint by asking – If I double the amount of this will my business/throughput increase? If the answer is no, it is not your constraint. Whenever a business manager asks for 1 more salesperson, for example, I always ask – why not 2? Why not 10? That forces the discussion of whether the constraint Is really sales, or something else altogether… if you had more 10 more salespeople, what would they sell? And so on..

One of my clients, a small firm, is currently going through a planning exercise for the next year, where they are being encouraged to think big, not 10% growth. We find that there is a recurring theme in all the team’s plans: we have sales people, we have clients willing to buy, what we don’t have is people to craft solutions for each client. Bingo!

Welcome to our new blog site – where Dr. Anand Desphande and I will be posting and moderating discussions around growing to the next level.. for small companies in the Rs 5 crore range.

Our experience has been that, afer starting up and becoming viable, companies often hit a wall – they struggle to grow. What brought them to this point doesnt help them get to the next level. We have worked with literally hundreds of small companies both directly and in seminars over the past fifteen years, and we have found that the issues are pretty common. In this blog, we will disuss these and invite you to share your experiences and wisdom. To reiterate, we are not looking at start-ups, nor are we looking at larger companies who are growing well, not larger companies who are NOT growing. Those issues are different, and need to be discussed differently.

Dr. Anand Deshpande, alumnus of IIT Kharagpur and Indiana University, is founder and Chairman of Persistent Systems Ltd. in Pune, and has personally steered his company through these very rapids..  Persistent System is now a public listed company, with revenues in the range of $400 to $500 Million a year.