From: alexhormozi
The “theory of constraints” (TOC) suggests that every business has one primary factor limiting its growth [00:07:23]. Growth efforts should focus on identifying and resolving this “constraint” to achieve significant progress [00:07:26]. This approach aims to move the business forward efficiently by concentrating all resources on the single most impactful problem at any given time [00:01:27].
Core Principles
The vast majority of growth strategies are often counter-intuitive and may not lead to actual growth if they are wrong [00:00:22]. Instead of focusing on completing numerous tasks, the emphasis should be on the amount of growth each task delivers [00:01:33].
The Business as a Tree Analogy
Imagine a business as a tree, where its height represents revenue [00:00:30]. Offshoots or “B+ problems” (e.g., adding a new email sequence, minor tasks) divert resources, preventing the main trunk from growing taller [00:00:49]. By “pruning” these less important issues, all resources can be directed towards the main trunk, leading to substantial and focused growth [00:01:17]. This concept aligns with the biblical idea of pruning a tree to keep it healthy [00:01:42].
The Big Wheel Analogy
Many people focus on making a small wheel spin faster, symbolizing busywork on minor tasks [00:09:20]. However, a single revolution of a much larger wheel can achieve more progress than ten revolutions of a small one [00:09:36]. The goal is to identify that “one big wheel” – the A+ problem – that, once rolled, makes all smaller efforts irrelevant [00:09:46].
Identifying the “A+ Problem”
Most people tend to tackle B+ and C-level problems because they are easier to solve and provide immediate gratification [00:02:32]. The A+ problem is typically “hairier,” involves more variables, is more complex, and requires analysis and iteration to solve [00:02:40].
Often, people spend their day completing easy tasks, feeling productive, but end the month without having solved the one big problem that would drive significant growth [00:10:18]. This A+ problem is usually soaked in the unknown; one may not know where to start, what to do, or how it will end, but understands its ultimate importance [00:20:26]. Solving it requires comfort with not having immediate answers and “pulling the thread” one step at a time [00:21:31].
Strategies for Application
Effective strategy involves prioritizing limited resources against unlimited opportunities [00:08:07]. An excellent strategist is adept at prioritization, able to identify the one action that will yield a significantly higher return (e.g., a 10x gain) compared to other possible actions [00:08:41].
Increasing Commitment and Urgency
Commitment is defined as the elimination of alternatives [00:01:49]. In business, this means eliminating everything that is not the top priority [00:14:24].
To implement the theory of constraints:
- Prioritize: Identify the single most important thing that, if done, would make everything else less relevant [00:14:42].
- Create Urgency:
- Increase meeting frequency for the priority (e.g., daily or twice a day instead of weekly) [00:11:20].
- Increase communication frequency, checking in more often to emphasize urgency [00:12:13].
- Eliminate Alternatives: Tell the team that current tasks are less important and they must “let some fires burn” to focus on the main priority [00:11:46]. This requires permission from leadership to ignore less critical issues [00:03:31]. It’s unfair to demand focus on a new priority without clearing other work [00:15:02].
- Reassess and Re-prioritize: Once the top priority is solved, reassess the situation and identify the next single most important thing, then repeat the process [00:15:29]. This ensures continuous, impactful progress [00:06:09].
Additional Tactics for Implementation
- Blame-Free Environment: When addressing problems, explicitly state that no one will be blamed. This encourages team members to share information freely, helping to better understand the problem [00:03:48].
- Make Progress Obvious: Use dashboards, progress markers, or thermometers to visibly track progress. This reinforces the efforts of the entire team [00:12:42].
- Incentivize: Offer a “pot of gold” at the end of the rainbow, such as a team dinner or time off, to motivate the team [00:13:02].
- Increase Information Transparency: Share company financials, conversion rates, and profit margins with the entire team [00:21:54]. This equips everyone with the context needed to help solve problems effectively [00:22:02].
- Review Workloads: Regularly check team members’ agendas to see what they are working on, as old tasks might still be consuming their attention or have become irrelevant [00:23:05]. This allows for clear direction and reduces anxiety [00:23:44].
Real-World Examples
Paid Ads Team Pixel Issue
A portfolio company’s paid ads team struggled with pixel tracking for three weeks [00:04:52]. Distracted by other funnels and sequences, they failed to fix the fundamental pixel issue, which rendered all other conversion optimization efforts meaningless [00:05:00]. By applying the theory of constraints, the leader prioritized only the pixel fix, ignored other known issues (even “ugly” pages), and set aggressive deadlines with frequent check-ins [00:05:43]. Everyone was instructed to abandon regular duties and focus solely on the pixel [00:16:18]. This intense focus led to the pixel being fixed across seven funnels [00:05:54].
Show-Up Rate Problem
A portfolio company had a low show-up rate for its sales events, impacting revenue [00:18:18]. Calculations showed that reaching the industry standard show-up rate would increase revenue by 35% and more than triple profit without additional risk within 30 days [00:18:36]. Since no other initiative offered such a return, the entire company was directed to make increasing this one number their sole priority [00:19:06]. This extreme focus led to the business growing by over 35%, even as minor customer service and sales issues were temporarily ignored [00:19:21].
Conclusion
Many businesses suffer from a “graveyard of half-built bridges” because they start many initiatives but never finish any, spending resources without seeing a return [00:17:40]. Focusing on easy problems provides quick wins and momentum but prevents major breakthroughs [00:19:54]. By continuously identifying, prioritizing, and intensely focusing on solving the single biggest constraint at a time, businesses can achieve significant growth and maintain a clear direction [00:15:29].