EP163: The Theory of Constraints and Ice Cream

We've heard the phrase, "Be careful what you wish for..." It's not unlike wanting to build pipeline quickly and how it relates to a kid in an ice cream store. What is the goal? Build as much - eat as much as possible to gain as much success and pleasure as possible. Think of the system of building pipeline like a child who isn't sufficiently mature enough to handle all that ice cream. Belly aches will ensue. So the issue with too much too fast is you can't find the bottleneck anymore. And if you can't find the bottleneck anymore, you can't manage.

In this episode, Corey asked Chris to visit the theory of constraints. Businesses are artificial, in the sense, that we say we're going to do something for others, and they're going to pay us money for it.  And then the question is, what are the inputs to the business? And whenever you have a system with inputs and outputs, you always have exactly one constraint within that system. That's what the theory of constraints says. 

The reason that people like Mark Cuban, Steve Jobs, and Elon Musks, and the like are such outstanding business leaders is they put their eye on the bottleneck regardless of the noise that's produced by the change that they are willing to induce in order to improve. Most of us can't do that. Listen to this episode of Market Dominance Guys, "The Theory of Constraints and Ice Cream."

 

Full episode transcript below:

Announcer (00:06):

Welcome to another session with the Market Dominance Guys, a program exploring all the high stakes, speed bumps and off-ramps of driving to the top of your market. With our host Chris Beall from ConnectAndSell and Corey Frank from Branch 49. We've all heard the phrase, be careful what you wish for. It's not unlike wanting to build pipeline quickly and how it relates to a kid in an ice cream store. What is the goal? Build as much, eat as much as possible to gain as much success and pleasure as possible. Think of the system of building pipeline like a child that isn't sufficiently mature to handle all that ice cream, belly aches will ensue. So the issue of having too much too fast is you actually can't find the bottleneck anymore. And if you can't find the bottleneck anymore, you can't manage.

(00:55):

In this episode, Corey asked Chris to visit the theory of constraints. Businesses are artificial in a sense that we say we're going to do something for others and they're going to pay us for it. Then the question is, what are the inputs to the business? And whenever you have a system with inputs and outputs, you always have exactly one constraint within that system. That's what the theory of constraint says. The reason that people like Mark Cuban, Steve Jobs, Elon Musk, and the like are all such outstanding business leaders is they put their eye on the bottleneck, regardless of the noise that's produced by the change that they are willing to induce in order to improve. Most of us can't do that. Listen to this episode of Market Dominance Guys, the theory of constraints and ice cream.

Corey Frank (01:48):

And here we are once again. Welcome to the latest episode of the Market Dominance Guys with Corey Frank and as always, in the throne of wisdom, the sage of sales, the prophet of profit, the hawking of hawking, Chris Beall. Chris, Merry Christmas. Happy New Year to you.

Chris Beall (02:04):

Hey, Merry Christmas, Happy New Year to you. That hawking of hawking thing always gets me. You know my background's in physics and-

Corey Frank (02:11):

Absolutely, yeah.

Chris Beall (02:12):

And Stephen Hawking's one of them guys that I just think is marvelous. Sad he's no longer with us.

Corey Frank (02:16):

Yes. Yeah, I will think of... It's a new year. I should probably think of a fourth honorary title here, so give me some time, but I'm still in my post-holiday eggnog funk, but the Market Dominance Guys rules on. Here we are in another year, 2023. Was this year number four of the Market Dominance Guys, is that correct?

Chris Beall (02:34):

Eventually, we'll just write the book and be done with this, but in the meantime, people have to put up with us.

Corey Frank (02:38):

That's correct. And so Chris, I know it's a new year for your company, for our company as well, and couldn't resist having a quick episode with no guest, old school, just me trying to suck the marrow out of your brain here and try to selfishly use that wisdom for my own business, which is the intent. Not a book. Not a book. It was all for my own personal gain, you know that.

Chris Beall (02:59):

Oh yes, I forgot.

Corey Frank (03:01):

As I tell everybody, I haven't had original thoughts since 1997, so this proves it. So but Chris, I thought what we talk about today is something we were talking about off air was the theory of constraints and how we teed this up was this concept of when you look at pipeline maturity and a lot of organizations are going into the new year, they're planning their sales kickoff probably in the next few weeks or so, and we've all been there as a sales rep, as an executive, as a CEO, CRO. We're going to saddle our folks very quickly with a number and that number is going to be 2 3, 4, 5 X what my quota is, right? And that's the number for pipeline.

(03:43):

Hey Corey, if you want to hit your number, which is a number generally it's picked like that, I need you to do three extra pipeline and you should be fine if you do that, or four extra pipeline, et cetera. And so we go through these machinations of as sales leaders, as marketing leaders of building pipeline for our folks. But it led to kind of a re-imagining of what we've talked about several times here, which is a theory of constraints. So I thought we would jump in and talk about that. You had a nice analogy with ice cream too, and little kids, you just had a new granddaughter, I think.

Chris Beall (04:15):

Yeah, granddaughter.

Corey Frank (04:18):

Your granddaughter. So very soon she's going to be grabbing you by the hand and walking down to the Port Townsend ice cream authority there and she's going to want some. And I think that plays very nicely in what we're going to talk about with New Year with constraints in sales pipeline.

Chris Beall (04:33):

Fantastic. So theory of constraints to me, and I've brought this up many times before, is this, it's a very simple, in a way, very simple mathematical view of life, which is that life consists of systems that are trying to get things done. Businesses are one class of those systems in which we come together in some way, or you could do a business by yourself, but they're attached to the outside world in a funny way. So as organisms we're attached to the outside world by having these inputs. We have food, we have water, we have the chemicals we generate when we exercise, which by the way I recommend everybody think that way when you exercise or taking good drugs and love all sorts of things like that. Those are our inputs. And our outputs tend to actually go back sort of in some similar directions, our relationships, people that we help. Outputs might be that we live for another day, whatever it happens to be. We do the things that we want to do.

(05:28):

In businesses we're a little more constrained. Businesses are artificial in a sense that we say we're going to do something for others and they're going to pay us money for it. So we put that sort of paradigm on it and say, okay, we'll limit ourselves to stuff like that. And then the question is, well, what are the inputs to the business? And whenever you have a system with inputs and outputs, you always have exactly one constraint within that system. That's what theory of constraints says. And the theory of constraints can't be wrong actually, although every time I say this to anybody, the 99% response is, oh no, no, we have lots of constraints. I'll repeat this, I said it in an earlier episode, when you say there's lots of constraints, you're either a leader who's trying to mollify your people by saying that they're all important.

(06:14):

You were to say, "Oh, only Corey is managing the constraint within our system." Then everybody else would feel bad because well are they important? And there is an actual challenge thing there, which is the number two part, which is, oh by the way, once we identify the constraint in our system, of which there's only one right now, it's the point where inventory builds up before it and you're starved downstream from it. That's it. And once we identify it, that's where our investment has to go. Otherwise, we'll invest in stuff that doesn't make a difference because all investments in non-constraints will not increase the throughput of the entire system if you hold quality constant or the quality if you hold throughput constant or some favorable combination of those two things. And so people don't like the theory of constraints.

Corey Frank (07:07):

It's a hard truth. It's a hard truth.

Chris Beall (07:10):

It's a hard truth and it's like in business, I think it's the hardest truth because it fights all of our political feelings about everybody should be important. Helen wrote a book, right? Helen Fanucci, Love your team: A Survival Guide for Sales Managers in a Hybrid World. And Helen's point is you're going to kind of have a hard time identifying as a manager of constraints and working on them, but trust yourself by trusting your team, knowing that they'll find the constraints which are buried, there are many of them in deals. They could be internal, they could be external, they move fairly quickly because deals themselves are very simple systems and they're evanescent, they come, they go. So she works in a world where the relationships are pretty long-term, but that's one approach. But as people who are leading companies, we can't quite do that.

(08:04):

We can't just say, hey love my team now you guys go figure it out. We actually have got to work together and say what's the real constraint here? Otherwise, a competitor will do that hard work and face that hard truth and we'll be screwed. Now here's one of the difficult parts about it for you and me Corey. We both provide a service. You have Branch 49 in a comprehensive service and us ConnectAndSell in a simple way. Our simple way is push a button, talk to somebody. In both of our businesses we fairly quickly in all cases take a current constraint, which is universal, which is at the top of the funnel and relieve that constraint, increase the flow rate of equivalently qualified, that means same quality, prospects or opportunities down funnel. And we sit back and smile and go, "Man, that's a great thing." Right?

Corey Frank (09:00):

That's right. Yeah.

Chris Beall (09:02):

And we don't think about the fact that we've just put a burden on that customer, your customer or my customer that comes with urgency because now we've helped them build a whole bunch of pipeline. But is it real pipeline or not? And many are skeptical of it and their answer will be, well the proof is in how it goes through the funnel. That is when you turn the funnel into a pipe, how much flows, right? That's the real question. And smart people are uncomfortable with our businesses when we apply them to them because they know that it is like a kid going to an ice cream store. It's like, "Well what's your goal?" Well it's to have as much pleasure as possible here per unit time. Okay, "How much ice cream should you eat?" As much as possible.

Corey Frank (09:55):

That's right. That's good.

Chris Beall (09:57):

Is that a good answer? Not exactly. Because the system that we call the child isn't sufficiently mature to handle all that ice cream.

Chris Beall (10:50):

Sure at some point the ice cream creates more of a problem than it solves and sometimes that happens with, you have a fair number of children. I've had a few myself and we've both been around a lot and we know that there are a bunch of problems that can occur, all of which would look from a business perspective like churn.

Corey Frank (11:10):

Well then Chris, to that point when you look at that, because I've been there, in fact when I was a client of ConnectAndSell at my previous company, I was the proverbial kid in a candy store, in the ice cream store and you showed me one scoop and just take that and I'm like, no, no, no. Give me a scoop of that. Give me a scoop of that, give me and took it all. And I'm sitting in a corner rubbing my belly cursing Chris for giving me so much ice cream.

(11:35):

And certainly there must be a problem with the ice cream. Not the problem with my ability to consume that over an X unit of time. So when you look at that, is there a formula or a best practice roster, a cosmo quiz, a cosmopolitan quiz that we should take as sales leaders, as executives to say, well where do I stand? How much can I actually consume knowing that a weapon like ConnectAndSell, an organization like Branch 49 will get you a lot of ice cream if you're not careful in your ability to digest that per a unit of time, per a unit of how many sales folks is something you should be mindful for on the front end.

Chris Beall (12:18):

Yeah, I think there are some things to be looked at and understood, some answers to the quiz. One is, does a firm that's about to generate more opportunities discontinuously? Because that's the problem with both of our businesses. We don't come in and go, oh, over the next six months to two years we will slowly ramp your opportunities. It's like, no, next week you're going to have four times as many meetings.

Corey Frank (12:42):

That's right. Yes.

Chris Beall (12:44):

It's always like really, and the bad news for you and me is that it's impossible to believe that this kind of speed could descend on you, and therefore why prepare for it? We often get skeptical people buying from us ready to believe and they find out, yes, this is true. It goes really fast and you get a lot of opportunities and yeah, it might suck your data dry a little bit or it might expose some issues with your talent with regard to their ability to actually set meetings, but fact of the matter is you generate the meetings or we generate the conversation, something happens almost immediately. But did we ask the question if something happens has the next step or the next part of the system that has to absorb that something which in this case ultimately is meeting set with equally qualified prospects, is that part of the organization well enough understood that you know how to invest in it in order to scale it?

(13:53):

And do you know what the cycle time is between a decision to invest in that next step and the next step actually being capable of higher throughput with the same quality? And that's generally a tough one. How many folks have actually scaled the next unit down? And often what I find is really, really small companies where the only salesperson is the CEO, these are the easiest as long as you don't make this one mistake. So the mistake would be let's hire a salesperson. And as I once told the CEO of a startup, here's what we're going to learn. You don't know how to hire a salesperson but we already know that. So why do the experiment? There's no reason to do it. Let's do this instead. Let's couple you with somebody who's going to advise you on this flow of opportunities business and let's pair you with this person and have them work with you just a little bit, say an hour or two a week and increase the flow rate of meetings for you because you are a resource or CEO who also sells in the early days of a company.

(15:06):

And the early days could be three, four years in. You actually know how to scale yourself because you're an excellent time manager. And so you'll be able to shift time around in your schedule to deal with this increased flow and then we can add a salesperson to be your assistant sitting in with you on discovery meetings, picking things up. And then we've split you, right? It's like biology. We're actually going to take the cell and we're going to fatten it up a little bit and then we're going to split it in two and then we're going to do that again and now we have three. That's scale. Scale is when you go from one to two to three, not when you go from 1 to 1.4, right? That's not scale. Scale is always doubling or something like that. Really mature organizations have less trouble with this because they've already figured out how to scale that next part of the process and they're overweight. So there's no way they're lean, they have too much sales resource.

(16:04):

And so the way that you deal with the excess flow in a big organization is you just aim it at your best reps. There's nothing to it. I mean really you just have to kind of make sure that when you generate additional opportunity flow in the early days of that opportunity flow you must aim it at your very best reps because they look just like those CEOs. They're great at time management, they're great at qualification and they can adjust within themselves like a valve that can get bigger or smaller and it doesn't bust. It's all the ones in the middle that are the problem. If you have a small sales organization, say you have three people, do you know who your best is? Do you know, are they good enough to take two X best person, and what would happen if they took two X? Is your organization, I'll call it politically and psychologically stable enough? Has it been through enough cycles of changing compensation, having new people come and go, dealing with change in the marketplace that you are not going to blow it up, they're not just going to run away.

(17:14):

Your two up-and-comers are going to leave, but you're trying to scale. It's those semi-mature organizations in the middle, the guys like you and I or anybody in this audience who sells discontinuous change you've got to look out for. Companies that are in the process of evolving to be great dominant beasts are in one of two states. They're either incredibly robust because they're so small that they can't be anything but robust because the flexibility is built into the founder or they're incredibly robust because they're so big they can't be anything but robust because whatever change they've adapted to is now reflected in the way they run the people who are there, the processes they have and they've got slack built in because you can assign stuff to different people, but the ones in the middle, especially the lower end of the middle, when one's going to two to three, those are fundamentally fragile and you need to feed them small amounts of ice cream. But they're the ones who are going to want the most ice cream.

Corey Frank (18:19):

Yeah, right. That's a great self-assessment if you will. Because it's much like the US military sending equipment to our partners, sending them to Saudi, sending them to Ukraine, these high Mars missile systems. That's a powerful weapon that can rapidly cause a lot of destruction, fire off rapid amounts of armaments. But in the hands of an amateur, in the hands of an inexperienced team, it's also very dangerous. And I think what I hear you saying right is when you generate pipeline, you may have the aspirations, there's all new shiny objects on the [inaudible 00:18:59] stack under the tree this Christmas that came and everybody's unwrapping them. Everyone wants to take them outside. You and I, especially you are sitting, hey, you're going to shoot your eye out, careful if you use too much of that one thing wrongly. Are you sure you have the right mechanisms in place to digest this? But does it really matter. If I'm getting more pipeline and if it's fallen off the table, if it's being wasted, I'm still netting out additional sales, why should I be so concerned about this?

Chris Beall (19:31):

It does bad things to your organization if you're still learning how to just run and grow because whether you're bootstrapped or whether you've taken venture capital or whatever, you're always learning how to run and grow and grow and run. It's a back-and-forth kind of thing. And so you grow a little, you run a little, you run a little, you grow a little and there's a reason companies that grow really, really fast look crazy when you get into them. There's a reason why you, and you've mentioned this to me before, when you're working with certain sales tech companies, it seems that they have a new person supporting you every week. It feels like that. Why? Because they have a new person supporting you every week. Is it possible that person really is much smarter than you are about their product? You've been using it for a year, they've been with the company for a week, they've been through a training program, you've been to a school much more rigorous than their training program called using their product in anger with your business on the line.

(20:29):

So you growing really, really fast is fundamentally dangerous. And we see it all the time. In our own industry we watched one of the companies grow really, really, really fast. They took in hundreds of millions of dollars. Their ideas sounded great. It was a robust company made of people who were sincere, knew what they were doing, but they didn't know what they were doing as soon as they started to add people at a certain rate because that's a new thing and you haven't done it before. And if you haven't done it before, you haven't made those mistakes in that context and you actually don't even know if you're working on the bottleneck. So the issue with having too much too fast is you actually can't find the bottleneck anymore. And if you can't find the bottleneck anymore, you can't manage, you literally cannot manage.

(21:16):

You're just doing what my sister used to say, playing business. You're the kid, you're put in the big shoes and you're sitting at your mom and your daddy's desk. Back in the day you'd be picking up the telephone. You have one right there and pretending to talk to people. And the fact is nothing's actually happening. You're like standing at the tiller of this boat we were on for five days off of Hawaii standing there looking like a captain. And I'm looking at the tell tales and yeah, I'm not doing nothing, but you could have replaced me with an autopilot and we would've done a little bit better. The real sailors knew how to make that boat work because they'd made a thousand mistakes and everything in their world was very orderly. But I'm the one who's playing at being captain. And you can easily find yourself playing at being a company leader when you have so much flow that's unanticipated into one part of what you're doing.

(22:10):

In this case, it would be opportunities in the pipeline that all of the noise that comes out of that keeps you from being able to actually run the company. Your new thing will become this by the way. As soon as you have too much opportunity, somebody will raise their hand and say, oh my god, our churn levels have gone up, or our conversion rates have gone down. Right, one or the other depends on your cycle times. Well duh, right? I mean, if I had an infinite amount of additional opportunity, by definition, since I can only serve a finite amount of final business, my conversion rates go down. So you take your eye off of what you really care about, which is the flow rate of opportunities coming out the other end of the funnel. They turn into transactions, those turn into customers you actually get to service. Those turn into customers that are getting value.

(23:05):

Those customers that are getting value turn into renewal opportunities and referral opportunities. My goodness, look at the marvelous things that happened. If you just could keep your eye on that and go, yeah, it's okay. I spend a little bit more, but I got a clear focus on my bottleneck and I'm not going to pay any attention to these other two things everybody else is paying attention to, which is my conversion rates and my churn rights. But nobody can do that because all those little voices will be out there. Now, there's certain kinds of leaders that ignore all those little voices. They're just few and far between and they have names.

(23:42):

They're the Steve Jobs of the world, the Elon Musks of the world. These people just go, yeah, whatever. Thank you very much. Love that you told that to me, that got three-quarters of a second of consideration. We're done with that now. Mark Cuban style. Got it, got it, got it, got it, got it and they go on, right. The reason that they're such outstanding business leaders is they put their eye on the bottleneck regardless of the noise that's produced by the change that they are willing to induce in order to improve. Most of us can't do that. And when we're picking our customers, we have another problem, which is we're not in charge of that. We're the vendor.

Corey Frank (24:24):

Yeah.