SOP 274 — Prune what returns least and move it to what returns most

1. You grow a tree by pruning it

A healthy tree needs pruning. Trees grow taller when resources are not spent on growth they do not need. The view here is blunt about the other kind: growth with no restraint on it is a cancer, and nobody wants one in a business, since it pulls resources away from the growth that is actually wanted. Put another way, beyond a certain point the only way to keep growing is to prune.

How the outgrowths arrive. Owners, in this view, tend to be biased toward yes: try it, experiment, give it a shot. So they try things, but they have no second motion for cutting the ones that are not working. Most owners, looking at their own business, would probably admit to having tried plenty of things. Sometimes they leave appendages behind: one could be a product line, a small team, or a process flow someone started. Many times you look at them with old eyes, because it has always been that way. A study of chief executives is cited here for the view that what most set apart the leaders with the highest revenue growth and profit was how readily they stopped, eliminated and pruned; the figures given from that study are in section 3 of SOP 168, the page on specializing the business.

Fresh eyes help. Sometimes that makes new employees, leaders above all, well worth asking: what do they see, and what does not make sense to them? People who arrive fresh challenge the way things are. Their view is a bonus, though. The person most responsible for spotting the outgrowths is the owner.

2. Look in three places

Look at the whole business. There are probably things in it right now that you expected to be huge, and whose return, when you look, is not nearly what you thought. Three places to look, in the order given:

People you hired for a specific goal. You thought they would change the game. Did they? Are they still worth what you pay? Are there people from whom you expected a higher return and did not get it, or have not yet?
Processes you put in place to feed a system. Does the system still exist? Did it do what you thought? A process that feeds nothing creates friction and no longer serves the end goal.
Product lines and projects. The back end you launched, the continuity program, the upsell: it was going to be huge, and now it is 5 or 10 percent of revenue, doing not nearly what you hoped: the ascension and attach rates are not what you expected. Yet it eats a third or half of your time while returning a small share of the profit.

Hold a hire to a vendor's standard. Owners will sign someone on at $60,000 a year, $100,000, $250,000 or a million, on a good feeling about the person. The same owners, buying software or a vendor at $100,000 a year, might need 20 calls and a pile of research first. Hold a person to the bar you would set for any purchase of that size.

Content and time count too. In one example, an owner found that a kind of short video had performed well on views, but the views did not turn into sales. Whether that matters depends on why you make it; here it was meant to promote the business, so it was not serving the end goal, and it was consuming time: interviews, travel and the rest. Where the returns were higher, in subjects about owning a business, the owner moved the time there.

3. Where do you put your $100?

Picture $100 that stands for all the money and time you have to put into the business. Spread it across these buckets:

Bucket	Return
First	10 to 1
Second	0.5 to 1, which loses a little
Third	2 to 1
Fourth	1 to 1

Some parts of your business return far more than others. If growth is not running at that tenfold pace, the likely reason is that part of your $100 is going into returns of a half to one, a quarter to one, or nothing. Once you know which bucket returns the most, everything that is not at that return dilutes it. Each outgrowth wants water, nutrients, your time, your money and part of the team.

The measure. How good you are as an owner, in this view, is how far you sit from your 10 to 1 bucket: the highest-return bucket you have.

4. A worked case

In one example, an owner sold a software product and, on top of it, one-on-one coaching, both teaching the same skill. Two-thirds of the revenue came from the coaching, which drained the owner's time and which the owner did not enjoy. The other third came from the software.

Line	Share of revenue	Lifetime value to acquisition cost
Coaching	Two-thirds	6 to 1, on cold traffic: $100,000 in brings $600,000 out
Software	One-third	20 to 1

The owner came asking how to make the coaching more profitable and less time-consuming. The advice was to leave the coaching alone and put as much ad money as possible into the 20 to 1 line. Even tripling that line would take ad dollars and none of the owner's time. From outside the answer looks obvious. Some of you, in this view, have a 20 to 1 line of your own and are putting your time into a 2 to 1, even though the weaker line might be the larger share of revenue. That is what probably threw this owner.

5. Why the cuts hurt, and why to make them anyway

Making the cuts is the painful part of tending the business. Two things sting, probably three:

You dislike making changes to your team.
You hate being wrong.
You do not like the conversations: letting someone go, or killing something.

For those reasons, most businesses carry more outgrowths slowing them down than the few things that speed them up.

Change your mind when the facts change. Wanting to look consistent is no reason to keep a bet. If new information changes the assumptions a decision rested on, you are entitled to change your mind, and, in this view, obliged to, if you mean to run a business well. Be willing to say you were wrong, admit it to your team, and hold the difficult conversations that follow. The speed with which you see a mistake and act on it tracks how close you get to your highest-return bucket.

6. The three-column exercise

To find a better use for what you have, write three columns:

Column	What goes in it
Problems	Everything you are dealing with now. Examples given: churn is high, click-through rates are low, you cannot find people for delivery, you are tied up in delivery, you get pulled into fires every day
Assets and resources	How much money you have, how big your email list is, what skills the team has, your core competencies: the building blocks
The blank	If someone came to you with exactly these assets and these problems, how would you tell them to recombine what they already have for a higher return?

One question fills the third column: is there a new way to define what you do for people that would bring more people to buy, and at a better gross margin? Your assets change over time, so be willing to reassess the strategy. Picking a route from the skills and resources you already have is in SOP 186 — Pick the path up the mountain that fits your skills, section 4.

Defend each decision. One practice here is to run this on a regular basis, defending every strategic decision in the business almost the way a lawyer would. Done that way, in one example it led an owner to weigh cutting one or two large revenue streams returning maybe 2 to 1. You only have $100, so it should probably go to the 10 to 1 bucket.

7. Cut, then move what you freed

Sometimes finding the 10 to 1 takes a lot of trying. The key is to cut the tries that did not work. Many owners keep a graveyard of failed experiments alive. With five things on life support, you can only bet $10 on your 10 to 1, not $100 or $10,000.

If you have not found anything better than 1 to 1 yet, keep experimenting. That becomes the objective: create capacity. Capacity comes either from subtraction or from adding something new, and adding costs money and time. If you have neither, cut something already running to free capacity for yourself or your team and leave room for more swings.

Cut the people, processes, projects and product lines that you expected to be home runs and were not. Take the money, the time, the skill and the resources and put them where they will return more. That might be nothing more than backing the main thing that is still working, harder. Pressing harder on a line that returns 20 to 1 is in section 10 of SOP 187 — Exhaust more before anything else.

8. Start the new flow before you stop the old one

The main recommendation here: start the 10 to 1 while the 2 to 1 is still running, and only then turn the 2 to 1 off. The preference here is not to switch off one flow before the next one is flowing. Sometimes, if you are very confident, you can make the switch first and live through a short gap, accepting the risk that every owner carries. That bet is made here because it has paid off before.

9. When your best bucket is capped

Moving money to the best bucket can hit a limit. If you hold a 10 to 1 and a 20 to 1, and the 20 to 1 can only take so much, you still put money into the 10 to 1. You still want to make money.

The same goes for time. Pruning to your best return does not mean all of your time goes there. The split in this view is 80-20, or 95-5, in favor of what returns more; if you want to help people for reasons beyond money, you can give part of your time to that. Probably not all of it. You will know your own split.

10. Make it a habit

Each quarter, ask what will be given up. One practice here: every quarter, before goal-setting, the first question put to anyone bringing a new plan is Great. And what are you giving up for it? It is about making room for the new, and asking whether the trade is worth it. It applies to the business's priorities, to how time is spent, and to the standards set for the people on the team.
Ask new people what they see (section 1).
Look back and reassess. Are your time and money going to the things that get you closer to your goals?

11. What this page does not decide for you

How often to prune. A regular basis, and each quarter before goal-setting, are both given. This page gives no single interval.
What return makes a bucket the best one. The buckets in section 3 are a picture, not a threshold. Not established on this page.

12. The checklist

Step	What to do
1	List the people, processes, product lines and projects you added expecting a big return
2	Set each one's expected return beside its actual return; hold a hire to the bar of any purchase that size
3	Find your highest-return bucket; treat everything below it as diluting it
4	Run the three columns: problems, assets and resources, and how you would recombine them
5	Cut failed experiments and anything on life support, and admit the mistake to the team
6	Move what you freed to the best bucket, or double down on the main thing that works
7	Where possible, get the new flow going before shutting the old one
8	When the best bucket can take no more, keep putting money into the next best
9	Each quarter, ask every new plan what it will give up

13. What this page does not cover

Grading each use of resources is SOP 185 — Allocate resources to the constraint and use leverage, section 8. Cutting the customer journeys that cost the most is section 4 of SOP 169 — Blend the customer journeys across products. What a change costs before it pays is SOP 188 — Apply the cost-of-change rule. Questioning and deleting steps inside a process is section 6 of SOP 221 — Move faster: run the five-step process, then commit. How to let someone go is not covered on this page.