Allocate resources to the constraint and use leverage

1. The behavior this page asks for

Learning is seen here as a change of behavior, and the changes asked for are numbered. Two of them belong on this page:

1. Aim your attention at what maximizes leverage. Get that one change, it is said, and you get the highest return possible.
2. Select the correct playbook and carry out what is in it. That is offered as the way to raise your odds of succeeding with leverage.

A third change goes with them; see section 13.

Flag: two firsts. Leverage is numbered first here, while SOP 184, section 3, calls focusing on the constraint the first and most important change. Where they are the same change put two ways, the order costs nothing; where they are separate, which to start with is left open. This page does not settle which reading is right.

2. What leverage is

Leverage is the gap between your input and your output. Ideally it is high, so that the same input returns more. Bring speed into it (the aim here is to grow faster, and maybe yours is too) and leverage becomes output per unit of time: the more you get out for each hour, the more leverage you are using.

It is not something a business has or lacks. Leverage sits on a continuum, and there is always some. It could be low, it could be middling, it could be high. So the question worth asking is not whether there is leverage, but how much there is.

3. Two levers: technology and skills

The thinking on this is said to have shifted, to a view that, it is thought, will help: there are only two core levers, and then there are the outputs of those two, which can be put back into the system. The two are technology and skills.

Technology. To dig a hole, you could use your hands: no technology at all. You could use a shovel, which people worked out in ancient times, and which made them far more efficient than bare hands. Later still you could use a bulldozer. Each is a different level of technology, so each is a different level of leverage on the same job. Writing runs the same way: you could use pen and paper, you could use software to write faster, and you could probably use AI to go faster again.

Skills. Skills are what you learn to do, as against the tools you use. Take a service business with a hundred leads, two salespeople and one script. Between those two salespeople you might see a 5x difference. The leads are the same and so is the script, yet one person has five times the other's throughput, and so gets more out for what goes in. A second example comes from media. Ask two creators for one short video each, and you might find one of them with a hundred times the difference. That is high leverage on skill.

Checking the idea against a whole country. One practice here is to pull an idea all the way up to test whether it holds. At the broadest level of economics, what raises output per person across an economy? The two biggest variables offered are technology and education: tools and skills again. That is offered as the check that these are the two forms of leverage.

4. Tools, in marketing

The same point holds in marketing. It is now, it is said, almost like a half tech role, and it is only going to get more technical, not less.

• The belief that you are not a tech person. The encouragement here is to break that belief, and to stop saying it about yourself in general.
• Tools win. You might say you are an old-school operator, and that is welcome. But in a contest for attention the one with tools beats the one without, and usually it is not even close.
• The hole again. Bare hands (you could dig a hole, just not a very good one), then a shovel (a faster hole, and hands that are not nearly as beaten up by evening), then a bulldozer (a far bigger hole in far less time). It is the same person each time. What changes is the tool, and with it the outcome. So the advice here is not to take any pride in doing it the old way: the point is to win.

The expectation that goes with this. With so many businesses and industries to serve, the guidance here stays kind of two layers down from the big picture, and a certain ability to work out the click-here, press-this-button steps is assumed. If you can't work out enough of that, nothing is going to work anyway, and you should try to work it out.

5. What the levers produce, and feeding it back in

Using skills and tools creates other outputs, and each one becomes leverage for later:

• Money, which is maybe the reason some of you want to do any of this.
• Other people's skills and time. Money lets you get other people to do things. Other skills do it too: even without money, you can get other people to act.
• A brand or reputation, which builds up from using tools and skills over and over.
• Distribution. For example, 5,000 different stores carrying what you make, because you used skills and technology to win them and build that reach.

The order of play: attack the constraint first with the skills and tools you have. That yields money, other people's skills and time, brand and distribution. Work out how to cut those up and use them several times over, then go back and attack the constraint again, this time with more leverage.

6. One input, several outputs

One of the more tactical forms of leverage, in the view here, is getting several outputs from a single input. It counts as one of the favorite ways here to create leverage in a business: how can one activity pay twice, three times, five times?

One practice. One advisory practice started workshops. By that practice's own count, each one is a quad dip, a count that holds for that practice:

• Deal flow. Businesses come in.
• Cash flow. The workshops are profitable.
• Media. A large number of clips are captured, and they push the flywheel further.
• Data, which an AI has been trained on.

Had each of those needed its own separate activity, there would have been far less leverage.

Look for the sawdust. Asking, every time, what the sawdust is (what other outputs you can pull from something you already do) typically pays off big, in the view here. Applied to marketing, the sawdust is the media that serving customers already produces: SOP 276, section 1.

7. The constraint is the priority

The constraint is the priority. As the entrepreneur you are the one who hands out the business's limited resources, and so, in two phrases for it, the chief allocator of resources and the chief prioritization officer.

One thing, first. People now speak of priorities, in the plural. The word comes, it is thought, from the Latin a priori, meaning first, or before: the thing you do first. The constraint is the first thing you go after each morning; anything else you spend time on does nothing to grow the business.

The harder part. If you have more than one priority, you are the problem. What chance does your team have of putting their time in order when you have not done that for them? The responsibility is yours, and if you cannot decide what your priority is, that is your fault.

8. Strategy is prioritizing

The word strategy gets thrown around a great deal, and has become, it is thought, a big and shapeless idea. As used here it means only this: allocating limited resources (time, money and the rest; everyone's are limited) against uses that have no limit. Said more simply, strategy is prioritizing. You face a million things you could do. Which one will you do with what you have?

Grade	What the resources are put to	What it means
Best	Whatever gives the greatest increase in throughput for the resources you have	Objectively the best strategy; the catch is that you cannot know which choice it was until after
Good	Something that brings an improvement	You grew. Not as much, probably, as if God had told you what to do, but more than before: the resources were allocated well
Poor, first level	Something that brings no improvement	If, for example, you are stagnating now, you are wasting what you have: one level of waste
Poor, second level	Something that makes the business worse	Double waste: the resources are gone, and throughput falls too

Reading your own position. Put bluntly, you might have a strategy issue: your resources are not going to the greatest potential improvement. If you are stagnating now, there is somewhere else your resources should go for a better return. A routine for cutting what returns least and moving it to what returns most is SOP 274, section 7.

9. Stories of resources put in the wrong place

9.1 The campaign that changed nothing (one level of waste)

In one example, the owner of a big business was sure its marketing was not good, and told the team, a head of marketing among them, that he did not think the ads were working. They were sure the ads were making a huge impact. It took six months before he told them to cut the ads. They did, and sales stayed the same. The business had basically been burning $2 million a month on that one campaign, which did literally nothing; the loss came to $12 million. It did not hurt the business, but it wasted resources. That leads to the next grade: you could spend $2 million a month on something that does not just fail to help but makes the business worse.

9.2 The full gym (double waste)

In one example, a gym owner hit full capacity at different times in a career; this time there was just one gym, and everyone loved it. Two kind of parallel sessions ran side by side, strength and cardio, each 45 minutes, and the place was packed. No more people fit in, yet the gym was not making the money the owner wanted. So the owner attacked the wrong constraint: the two sessions were merged into one and cut to thirty minutes. Capacity went up, but nobody liked the new product, and the result was a massive spike in churn.

The smart move, as the owner named it afterwards: everyone loves it, you are full, raise your prices. That would have kept an excellent product and made more profit, with a far simpler fix than reorganizing the whole operation. The owner was young, by the owner's own account, and did not know better. The resources went into remarketing the change, explaining it, and retraining staff on the new way. All of that effort was wasted, and the business was hurt as well.

9.3 Answering a copycat (double waste, again)

The same owner made this mistake more than once: one of the biggest mistakes made, of a couple of big ones, came in another business the owner ran. Someone in the market took a number of that business's top customers and tried to partner with them on a cheap copy of what the business sold. Their offer cost less and came with one-on-one help, which the business did not offer at the time. It was, the owner says, the first and last time of looking at competitors. After a whole rigmarole, the owner launched to the existing customers: everyone pays 25 percent less, gets more, and has to do nothing. Two things followed.

1. Many people complained. The price had come down and service had gone up, and customers were upset that they had been paying all along without getting it. The lesson drawn is that people hate change, whatever the change is.
2. Cut 25 percent off the top line and add costs, and it kills your profit. The profit lost from that one move was never recovered.

These stories are not told to make anyone feel bad: they are mistakes an owner really made, and ideally you would avoid them.

10. Where this sits

• The first step, finding the one constraint and the order of questions that narrows to it: SOP 184, sections 4 and 7.
• Choosing which of several routes to take against the constraint once it is found: SOP 186 — Pick the path up the mountain that fits your skills.
• What change itself costs is taken up on SOP 188 — Apply the cost-of-change rule.
• Getting more leads out of the same effort by testing: SOP 40, section 3.
• Limited resources, unlimited options, and prioritization as strategy, at an early stage of growth: SOP 149, section 6.
• Buying or building the skills you need in other people: SOP 44 — Buy or build talent.
• Keeping your week's hours on your priorities: SOP 137 — Run the weekly time-blocking ritual.

11. What this page does not decide for you

• How to tell the best allocation in advance. The best strategy is said to be knowable only after the fact. Not established on this page.

12. The checklist

Step	What to do
1	Put your attention on what maximizes leverage
2	Ask how much leverage there is, not whether there is any
3	Raise it through technology (the tools you use) or skills (what you learn to do)
4	Take the outputs (money, other people's skills and time, brand, distribution) back to the constraint
5	Ask what the sawdust is: which other outputs an existing activity could give
6	Keep one priority, the constraint; if you have more than one, the problem is you
7	Grade the use of resources: best, good, poor, double waste; if you are stagnating, move them

13. What this page does not cover

The third behavior change, about confidence in a set of AI tools, is not covered on this page. The playbooks themselves are not covered on this page. Building a business that grows on its own is SOP 199 — Build a compounding vehicle.