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8 Blocks: The Critical Realities for Growing Any Business

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  • Paul Schwada is the managing partner of the Chicago-based consulting firm Locomotive Solutions. He applies practical insights gained from a long history of work inside corporations with the objectivity of an external collaborator. He helps clients around the world find, and take, the best path forward. Connect with him at linkedin.com/in/pschwada, via Twitter @BizWellDone or locomotivesolutions.com.

risk

Have you ever met a salesperson who enjoyed doing expense reports? Me neither, and I certainly understand why. Not only are they tedious, expense reports don’t directly contribute any value to the salesperson’s work. They’re simply a constraint he has to deal with because someone once bought fishing gear on a company credit card.

We all have constraints. They limit our time. They limit the available options when we make decisions. They limit our effectiveness. And they may not provide much upside to compensate us for the limitation. But they’re real, so we need to identify and work around the most significant constraints.

You may have worked with someone who resembles a certain animal when it comes to constraints:

The ostrich puts his head in the sand and refuses to acknowledge the reality of the constraints. He’s the guy who keeps suggesting the same idea, even though everyone else knows the idea won’t gain any traction with the people who have to approve such things.

The seal barks loudly and obnoxiously about the reality of the constraints. Seals don’t really suggest any ideas; they just tell anyone who will listen why the organization is too foolish, lazy, fearful or short-sighted to avail itself of certain oh-so-obvious solutions.

The donkey knows the constraints are real, but stubbornly resists them. The donkey acts on his preferences—doing some things, refusing to do others—even though it will cause aggravation for himself and
the organization.

All three are committing a grave offense: They’re wasting opportunity. Sure, some of the constraints you face may be unfortunate. But most businesses have way too much potential to waste time pretending the constraints don’t exist, complaining about them or fighting them. Your objective is to grow the business, so recognize what you have to deal with and move forward.

You don’t need to identify every last constraint (“I can wear open-toe sandals on Fridays in June, but not on Mondays in March”). You need to highlight those that have important implications for your growth efforts. It’s not always easy to identify constraints until you bump up against them, and I’ll admit it’s not very exciting work. So here are some ways to identify constraints.

Your Risk Profile

If you’ve ever found yourself thundering behind closed doors at the shortsighted nincompoop who refused to approve your plan (a no-brainer!), the problem probably wasn’t his IQ or his eyesight. More likely, you were feeling the constraint of his appetite for risk. Each organization has a unique risk profile that exerts powerful influence. It develops from a blend of many sources, but more important than understanding the source of the madness is defining it so you can save yourself the grief of thundering at all.

The basic question is simple: What could you afford to mess up in order to try to grow the business?

Could you go into the tank this year, this quarter, or this month in order to try something that might prove valuable over multiple years? Could you afford to ruin some relationships in this customer segment, or with these channel partners, in order to try something that might allow you growth in other areas?

Maybe you can only make investments that will pay off in a year or two; a slower return is unacceptable. Or maybe your organization is comfortable with decade-long payoffs.

Your risk profile almost certainly constrains various investments based on their size.

Maybe the official approvers don’t care about time frame so much, but no one’s putting anything more than $20,000 on the line—no matter how wonderful the opportunity. That kind of limit may have nothing to do with the depth of your company’s pockets.

Or perhaps you can’t invest more than $10,000 without a federal inquiry, but you can waste up to $9,999 and no one will say a word.

Maybe it’s brand. In some companies you just can’t take any risks with the brand or the public image. They place conservative limits on what the brand means and the things to which it is attached. There are endless possible constraints defined by your risk profile, but advancing an organization in significant ways always entails risk. If you’re going to try to grow the business,
you need to know your limitations.

Cultural Expectations

There are plenty of other possible constraints you need to know about. Some are cultural: We’re going to work a certain way, communicate a certain way, pay people a certain way, care about certain things and hire certain kinds of people. If every employee in your organization attended a prestigious university, your growth plans may be limited to ideas that involve such pedigreed personnel.

If you can’t market the business to a certain kind of customer because that customer just doesn’t fit the managing partner’s self-image, so be it. I know a guy who blows blood vessels quarterly because the company’s leaders just can’t wrap their heads around the modern idea of developing a venture capital function within an established corporation. He sees obvious benefit in adopting the new style; they see themselves wearing a fashion that just doesn’t feel right—the discomfort probably compounded by the constraints of their risk profile.

Mandatory Processes

There are usually some “mandatories” you have to work around. These are things you simply have to do and there’s no point in arguing about them. The salesperson’s expense report is just one example of this. If you have to jump through certain process hoops or meet rigid timelines to get official approval for funding, plan for it. If you have to provide quarterly updates to the top executive for any special initiative, you just have to deal with that mandatory requirement.

Assumptions

Similar to mandatories, sometimes the organization won’t accept anything other than a certain answer to a certain question, and this kind of constraint can be troubling. The sacred cow might be that your prices can never fall below a certain threshold, or that customers choose you because the founder’s picture is on a billboard. If you have to be at that one conference, regardless of whether you think it’s a good investment, fine. And doggone it, if your product has to be made in (pick a country) or your CEO’s grandfather will roll over in his grave, then it just does. In a case like this, identify the sacred cows and move on. You need to know about faulty assumptions, but you can usually work around them. Few constraints are so substantial that they obstruct all paths to growth.

The Four Ps Are Potential Constraints

Sometimes a constraint is inherent in the traditional four Ps—product, price, promotion and place (also called channel or distribution). Ideally the people trying to grow a business have access to all four of these levers, but the reality may not be so kind. The upside is that thinking through your constraints in the four Ps can actually be a creative and insightful exercise.

Particularly in a company that is defined by the one thing it does, you might be stuck with the product. It is what it is, of course, but the situation is often more nuanced than that. Portions of the total product offering may be fixed, but there may be some aspect you can change—such as the name, the configuration or the warranty.

Maybe price is a constraint. For whatever reason, you can’t fiddle with the price of a certain high-visibility product (or a highly regulated product). But consider these constraints carefully; like product, there are many angles to price, and you may discover that you have more flexibility than you initially thought.

What about promotion? How constrained are you when it comes to making decisions about how you’ll promote the business, such as that trade show you “have to” attend? You need to know this to avoid wasting time (and political capital) on growth efforts that simply aren’t real options for your organization.

And place/channel/distribution can be a constraint in many kinds of businesses. How do you actually deliver to the market, and is there wiggle room in that model? Could you eliminate or change channels? If not, could you add a new channel? Could you modify the channel you use, or modify how you use it?

There’s some overlap between the categories I’ve listed here, certainly, but these are the kinds of constraints you need to know about. And the process of thinking through them will get you close enough to reality.

To highlight the importance of constraints, let’s use an example from the Four Ps. Having to use a certain channel to market is a difficult constraint to work around. You may be able to create a secondary channel to subsidize it, or you can try to optimize the approach for that inferior channel (to make the best of it). Either of these options will usually be better than trying to change a deeply and widely believed assumption. And if the assumption really is wrong, then this may be a brilliant opportunity to help everyone to realize that—as you try to put a square peg into a round hole.

Take a moment and make some mental notes: How does your organization’s risk profile constrain you? What cultural characteristics do you need to accommodate? What are some deeply held assumptions that you question? What are some mandatory processes or actions? Which of the Four Ps can you fool around with? Are they constraints—do you just plain have to live with them—or not?


Book excerpt from 8 Blocks: The Critical Realities for Growing Any Business by Paul Schwada. Copyright © 2015 by Paul Schwada. All rights reserved. Published by GamePlan Press, Inc.

Author

  • Paul Schwada is the managing partner of the Chicago-based consulting firm Locomotive Solutions. He applies practical insights gained from a long history of work inside corporations with the objectivity of an external collaborator. He helps clients around the world find, and take, the best path forward. Connect with him at linkedin.com/in/pschwada, via Twitter @BizWellDone or locomotivesolutions.com.

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