SPEAKER_01 0:00

The theory of constraints is probably one of the core frameworks I believe every single entrepreneur must master if they want to grow and they want to, they don't want to get stuck. Like most people get really, really stuck. And one of the most common questions we get is what do I do next? What do I put my attention and focus on next? And so in this episode, we're gonna dive into the theory of constraints for e-commerce because there's some nuances to this that I believe everybody should master, but I want to talk through, I'm gonna visualize this, I want to draw this out. So we have my iPad here that I'm gonna be able to do some sketching so you get a little bit of a visual on this. I'm gonna draw out this framework and model for you to try to remember and memorize so that as you are running your business, you will always be able to say, what is the constraint in the business that I must solve next? Man, that was a good that makes me want to listen to this episode. That was a good hook. I'm excited for you. I'm excited for you because I, well, first of all, if anyone doesn't know who we are with e-commerce Alley, my name is Josh Coffey. I'm the founder of it. This is Dylan Counts, who is our marketing director as well, as well as uh the co-founder of Breezeway, which is our uh ad launcher, ad management software for e-commerce businesses. It's 10 times better than ads manager, and you can launch ads way faster than ads manager, which is an advantage. At least two times faster.

SPEAKER_00 1:19

At least at least twice. And if it takes you an hour to launch, that's 30 minutes of time. That's but I think it takes probably people longer than an hour.

SPEAKER_01 1:26

Yeah, it depends on how many ads you launch, too. Yeah, yeah, yeah. So go check out breezeway.co, get a free 10-day trial. Uh fantastic tool. All of our clients use it and it's amazing. All right. Theory of constraints. Do you know what it is? Well If you were to define the theory of constraints, what would you what would you say it is?

SPEAKER_00 1:42

I mean it it's somewhat in the name, I think, where where if you're trying to identify I mean, you said what to work on next. So if if you're trying to identify what to work on next, you need to identify the thing that's stopping you from going where you want to go. Exactly. Your constraint that's stopping you.

SPEAKER_01 2:04

Exactly. That was good. I love about the theory of constraints, is literally it is just in the name.

SPEAKER_00 2:09

That's true, but then but you add theory in there and it gets looking at the theory. What is a theory?

SPEAKER_01 2:13

Theory of constraints. Here's my theory about it. Yeah. Here is just literally, it is funny, the theory of constraints is just like here's how to remove constraints. The constraint remover. We'll we'll shift it a little bit because that's really what it does. And it says that a theory of constraints is to improve a system by identifying and fixing its biggest bottleneck. Makes sense. Makes sense, right? Like you could hear it in the name. And I I asked this on coaching. I'll be like, hey, scale one to ten, how familiar are you with the theory of constraints if if someone's coming with constraints that they're having? And most people, well, give me a seven. That's like the safe number. Yeah.

SPEAKER_00 2:46

No, but actually, have you heard have you heard Dr. Mark Matthews talk about ranking things from one to ten? Yes. This is a side team.

SPEAKER_01 2:53

He thinks you should remove sevens.

SPEAKER_00 2:54

Yeah. It's like, yeah, you can't let them say seven, because if they say six, then they're not familiar. If they say eight, they're very familiar. But seven is the safe number. Seven is the safe number. So just start removing sevens.

SPEAKER_01 3:03

Anyone who's listening right now, on a scale of one to ten, that you can't pick seven, what is your familiarity with the theory of constraints? Well, most people would say, and I ask this in coaching a pretty good amount, most people would say, I get the concept, right? Because it's just in the name. It's like identify the constraint in the business and solve the constraint in the business. And that's really good from a high level, but I want to actually get into the weeds of this because there's actually a step before you identify the what the constraint is in your business. And this makes a really, really big difference. And so there's a five-step process that I have taken the theory of constraints and I have applied this to how I would view this from an e-commerce standpoint. And I want to share that with everybody today, that these five steps, if you memorize these, when you need to identify a constraint in the business, which by the way, should be every single day. Every day, one of the highest leverage things you can do in your business is just work on the number one constraint that is stopping you from growing. If you were to do that every single day forever, it would be unreasonable for you to not grow your business. Yeah. I mean, unless you're just really bad at removing the constraints. But you know what? Over time you get better at that and you just have to keep going. Uh, or else it's just busy work. And I think that's the most common thing. People get stuck and so they like gravitate toward the things that are fun to them and the projects that are on their mind, they're like, oh, I've always wanted to start building a personal brand. And so I'm gonna go start building a personal brand. It's like that's not the constraint in your business. Like, there's so much more. And let me give you an example of I walked this entire process with a client about a week ago. And I'm sitting there on this call with her, and we're walking through everything. And I said, How are you on the acquisition front? And so we're just walking this process. I use the four areas of core constraints in e-commerce are acquisition, fulfillment, product dev, and ops. Those are the four constraint major areas. And I walked through this process. She's like, Well, I am constrained right now because, you know, like the I ads are going really, really well and I want to crank really, really fast with my ad spent percentages at the ceiling and all of this. And so she thought it was acquisition. And I walked all the way down it and I said, if we increase this on your performance, would you get a lot more customers? She's like, Yeah, I wouldn't stop. Like right now is our go time for our season. And I said, What would happen to your inventory? She's like, we would stock out. I said, Okay, so then do you have more stuff on the way? She's like, it'll be here in two weeks, but then I can't place the order for the next one, and blah, blah, blah, blah. And we found out it was actually cash constraint. And so she had a cash constraint. And I said, Great, now we can solve for the cash constraint. We're gonna go run this promo sprint, we're gonna do this deal, we're gonna do these two things before you need to place this massive $50,000 PO. And so we just literally mapped it to that. Now, if we thought it was acquisition, she would have just gone and kept working on acquisition and meta-ads and whatever, and it was cash, and so we had to solve for cash. And so it's really important that you identify what this constraint is, not what you want, because most people want more customers, but there is a reason why their ads are not as efficient as they could be. And so there's a subconstraint within the idea of acquisition. So let's walk through this together. That sounds like fun to you?

SPEAKER_00 5:56

Yeah, let's do it. I I've been thinking about this a little bit, but I'm excited to see the full framework in its entirety because I haven't I haven't heard you use the full framework. So I'm excited to kind of walk through this. And also the like I think the the big thing is like people don't realize like I think a lot of people will just pick the easier constraint to identify. The constraint's just like, like you said, acquisition, because that's the thing that they just look at, they see the numbers and the numbers hurt. But you I I'm excited to dig a little bit deeper to see what that constraint or how to how to look deeper to find the actual constraint. Because I think that's what people really struggle with.

SPEAKER_01 6:39

Yeah, yeah. Let's do it. Okay, so first step here What do you need to do before you can identify a constraint? What do you think the first thing is? And by the way, this is me quizzing Dylan because you haven't seen this framework yet.

SPEAKER_00 6:52

No, I haven't. I haven't.

SPEAKER_01 6:54

This is fresh off the fresh off the press.

SPEAKER_00 6:56

So I think you have to you have to know where you're going. Because if you start, if you start first by identifying the constraint, then you're you're going to identify the constraint that you think you need to identify today, which may be a constraint, but it's not the actual constraint that's going to get you to where you want to go if you're not looking at where you want to go. So my that would be my first step, I think, is like identifying where you want to go and what you want to do before before actually identifying the constraint, which might be a step people skip.

SPEAKER_01 7:34

Yes, absolutely. And so the first thing is, I'll give you an example. So the first thing is you have to understand the goal. Like, where are we actually Oh, that's a better way of saying it. What's what's the I I really strewed it out. Goal is a good idea. So what's the goal that we're actually trying to accomplish here? And actually, the the theory of constraints is it's from a book, a guy, I forget the guy's name, that created the theory of constraints. The book is called The Goal. That's what the name of the book is. It starts with the goal because if you don't know what the goal is, then what constraint do you do? There are freaking infinite constraints. I mean, how many times like one of our the number one jobs we have as coaches, every day? So people get on, they're like, hey, I need to increase my uh my conversion rate. Like, okay, uh maybe.

unknown 8:20

Yeah.

SPEAKER_01 8:21

Maybe. Let me tell you what, conversion rate optimization is very rarely the answer for almost any of the last coaching calls in the last like six months I've done. Now that's true. I can't even count on I don't even know if I can count on three fingers a number of times that's been the thing. So it's like there are infinite constraints inside your business, but what is the constraint is the question that we have to answer. And that depends on the goal. So, like, if you believe the goal is I need to move this metric from this to this, then your options of what the constraints could be narrows dramatically. And so I'll give an example inside of our own business. Now, our business is probably a little different than yours because we have sales calls and we have like sales team, and so we have it's a little bit different flow than most people listening to this call, unless you sell really, really high ticket. And so for us, our average, and I sometimes I qu I quiz clients on this. I've asked clients this before. I've said, how much do you think we pay on average to get someone to book a free 20-minute call with us? And they'll be like, I don't know, like $80, $100. I wish.

SPEAKER_00 9:25

If they think if they know how to do that, let me know.

SPEAKER_01 9:28

$200. I'm like, uh-uh, uh-uh. And they'll just keep going up. And then finally, the last call I asked someone this, I don't know, in the last couple weeks, they're like, $600. I don't know. I was like, they're like something crazy. And I was like, $574.

SPEAKER_00 9:42

Well, it's down now. Now it's right, it's down $67.

SPEAKER_01 9:44

I said, how much do you think it used to it cost us a couple months back to get a 20-minute call? And they're like, well, all these numbers, right? Which sounds crazy. And we pay $574. That was our cost per call booking, and that's a metric on our CEO dashboard. So we identified that's a pretty big constraint. You know, when you have customer acquisition for us, like net at like $2,250, like it's really, really that's pretty big. Yeah. And so we set, we decided the goal is we want to drop this below $400, which would be almost a 50%. Yeah. It'd be a 33% decrease in cost per call booking. So what we had to do, we had identified the goal before we could actually identify what the constraint was in the business.

SPEAKER_00 10:24

So when we identify a goal, the way we I was gonna Yeah, I was gonna ask you in this, because I think this is where a lot of people get stuck. What would be an example of identifying a bad goal? Because I think like like you kind of said, conversion rate. Like, would you identify that as a good goal or a bad goal? Because I think, and I'm thinking this out in my head right now, people look at their conversion rate, it's a 0.5%. They're like, I need to fix my constraint, is my conversion rate. Would you say that the goal is actually the conversion rate and then the constraint is the reason that the conversion rate is the goal? Or do you think the goal needs to be bigger and say, like, so so would you say conversion rate is a bad example of a goal, or do you need to think bigger on the goals?

SPEAKER_01 11:10

Uh so this is where there are there are layers to this. Okay. Kind of like onions have layers. And ogres have layers. I've never seen Shrek Shrek. Goals have layers. You've never seen Shrek. No, I haven't. What is wrong with you, dude? I wasn't allowed to watch Shrek as a kid. Is it because of all the sexual innuendo? I don't know.

SPEAKER_00 11:29

Actually, no, I think it was just because my parents thought they were it was annoying. Oh, yeah. I also wasn't allowed to watch Spongebob.

SPEAKER_01 11:35

I could quote Shrek. You were definitely sheltered a little bit. You were not watching Bikini Bottom as a kid. Definitely not. Okay, so speaking of SpongeBob, one of our strategies of scaling I call it the Krabby Patty Formula is. I wouldn't even get it.

SPEAKER_00 11:49

You wouldn't even get the I I actually I snuck SpongeBob. I had to watch it when my parents weren't home, and it really was only because they found it annoying. Dude, so okay, I gotta give you that. I mean, yeah, Patrick's just a dumb dude. It is very like even now watching it, I'm like, okay, I see why my parents wouldn't watch this only because it's annoying, not because it was bad, just because it's like I do not want to listen to this in the world.

SPEAKER_01 12:12

It's really dumb. It is really dumb.

SPEAKER_00 12:14

Okay, all right.

SPEAKER_01 12:14

So there are there are layers like onions and ogres to constraints or setting goals, I believe. So you have this really, really high goal. So let's say, okay, high-level goal. What's the timeline in which I'm trying to do the thing? And so, like, you could go bigger picture. So we could say, like, hey, goal is $10 million as a business. That's a really, really high-level goal. The problem with saying that's the goal is that it's so far up, I believe, that is like, what do I change differently about this? So then I layer it down and I use something that I call the four constraint areas to narrow it. This is where, like, this is where I'm enhancing the theory of constraints because it's really hard to say, okay, how do you identify the goal? Dude, there's so many goals. Like, we want to lower a CPA, we want to increase ROAS, we want to lower cost per call booking, we want to do there are infinite things you could want to move metrics on. And so I like to use the four constraint areas. Now, these four constraint areas are an e-commerce, an e-commerce thing that we do. So like I look at there are four areas. I'm really bad at drawing.

SPEAKER_00 13:21

Yeah, this is looking rough.

SPEAKER_01 13:22

Okay, I'm really so so there are four there are four areas you're gonna constrain inside your e-commerce business. The first one is acquisition. And the symptom of this is that your is it your orders are down and your KPI, whether that's ROAS or CPA, is down. So if my performance is down, yeah, yeah, yeah.

SPEAKER_00 13:46

CPA down is good.

SPEAKER_01 13:47

You're a yes. KPI is bad. KPI bad. Yeah. KPI bad and orders down, that means you have an acquisition. Meaning like good question to ask yourself. Can I can I can I take on more customers? If the answer is yes, you have an acquis, you likely have an acquisition problem. Yep. Some people would call this demand constraint. Yep. The second area that you constrain is fulfillment. And this is where inventory is down, like you can't keep inventory, or or or maybe you you can't ship out. Like shipping is down. I just use arrows on here because I guess manufacturing.

SPEAKER_00 14:25

You're backlog.

SPEAKER_01 14:25

Or I'm sorry, I'm sorry. There are three there are three areas of this. Like you just gotta think, like from a fulfillment standpoint, you have the actual like inventory you have to buy, then you have the manufacturing that you have to, whether you do that in-house or you outsource that, and then you have the actual shipping of it. Yep. So if you're like eight, basically, if your backlog, that's what I meant to say, not shipping. If your backlog is up, meaning like you're backlogged in production slash manufacturing, or you're backlogged in shipping things out. Like we just had a client that experienced this, like she literally has grown so fast. She's almost not quite 10x in the last year. Like, she's grown like crazy. And Robert's on a one-on-one coaching call with her. And he's like, dude, you have three people that are doing they they ran out of space to literally even they have three people that are packing and they literally they can't fit a fourth person in there, and so they're backlogging there. And so it's like, great, now fulfillment is a constraint, we got to go solve that. We need to hire this other person, but because there's no space, we need to have them come on second shift so that that way it doesn't mess with the space of the people. Like, so then we solve backlog. So fulfillment is a constraint. If orders are flowing in, your performance is really good, but you're stocking out, inventory is down. You literally could have got another order if you could. You could, yeah. So by scaling ads, you continue, it actually hurts you. Yep. Right. Then the next one is the third area is product dev. Product dev is typically like refunds. Refunds are high and support is high. So this basically just means like, hey, you're just having a lot of problems. You got to go back into product dev. Like you're selling a lot of stuff, you're shipping it out, but you're getting a lot of returns.

SPEAKER_00 16:01

When I heard you say product dev, my brain went straight to you don't you're not developing a new product right now, which is not the case.

SPEAKER_01 16:08

It could be, it could be, it could be new product. Yeah. Another sign that you might do product dev is that sometimes acquisition looks bad, but it's just because like you're just really hammering the top of an audience for a particular product. But this is like very rare. Like you have to get such a niche thing that's like there's nobody then you have to expand product. So usually product dev means just making better products versus new. Okay. You can make new, but it's usually got to make better. And then the final thing is just ops. And this is like this is if your burnout, like for you as the founder, is really high. So if you're feeling like burnout is high, morale is low, and your process is low, like bad, like things are kind of breaking there. And then that's I would also say this is gonna be your cash as well. Like cash just keeps running out. And so uh these are the four areas of constraint. Now I start with that because if I have to establish a goal in the business, I say my true North Star, I'm trying to hit 10 million, what would stop me from hitting that? I then go and I ask myself, am I constraining in acquisition? Am I constraining in fulfillment, product dev, or ops? Now I'm gonna save everybody a lot of work, and I'm gonna say most of you are gonna be in acquisition because once you solve anything below, you always go back to acquisition. Yeah, all roads lead back to acquisition. So you crank acquisition, you break fulfillment, you go fix fulfillment, you crank acquisition, and then there's some other thing that breaks below. You need more team to do things, so you go down to ops and then you go back to acquisition. So, first I would say, number one, what is the goal? And if I have to establish a goal, I then have to say, what are the four constraint areas? Find an area and then go into that area and look at all of the metrics in that area. Somewhere in there is the metric that needs to be moved that would then allow you to open the floodgates and start climbing revenue to the next level. So I believe number one ever should have a high, high-level revenue number, but that's not what I set is the goal when it comes to solving constraints because it's just too high to really do anything. Because then it's like, oh, I could literally do anything. Yep. So it's like, okay, great. Goal, look at the four constraint areas. Most people are going to be in acquisition, some people are gonna be in fulfillment until they break it, and then they go back to acquisition. So I look at the four constraint areas, then I set a wig. So we have four constraint areas, and then you set what's called a wildly important goal. This is where you now establish the goal, and then you have to move that metric. So, for example, in our business, we looked from the acquisition standpoint. We're like, okay, we're we're back at act, we're in acquisition right now, and we're constraining at the fact that like we're setting a $574 cost per call. We need to get the sub 400 would be a really good movement. So we set that as the goal. We said the goal is we need to move it from this to this, which by the way, your goal should be X to Y in ABC time. So our goal was to move from four $574 cost per call to to $400 cost per call by June 31st or whatever the heck it was. It was like for Q2. So we set that goal, and then because that was the goal that we set, we were able to then go down into our we were able to, we set a goal of like of moving this metric, we then were able to go down to the constraint and find like what would stop us from being able to hit that. So we were able to go in and for us, we're like, look at the look at the funnels, where could people book calls, all of this, and it came down to the constraint that we well, I guess the next step is identify constraint.

SPEAKER_00 19:23

I kind of just yeah, I was kind of trying to figure out when step two came in because I think we're kind of there. Or I guess so you would say the the four constraint areas actually go towards the goal setting.

SPEAKER_01 19:35

It it helps you. So I actually believe you do you kind of start to do one and two in a very similar time frame. Okay. So like that makes sense. To set the goal, I first have to like say, well, what do I set the goal on? And then I go to my, I I think of constraint areas, which then helps me directionally know where I'm going. Yep. And then I go look at all the numbers. And then the number tells me what I need to fix. So in this case, it was, in this case, it was cost per call booking. Yep. And then I was able to say, okay, now our cost per call booking is really high. So now I'm I'm thinking of every single thing that has to do with booking calls in our company. Yep. What is the actual constraint we're doing? Is it time on sales on the closer, you know, or is it the funnel that's slowing that down? Is it the follow-up emails that are not getting the calls booked? Like, where is the actual constraint in this thing? Gotcha. So so we set the goal to lower that, but the constraint could be a plethora of different stuff. Yep. And so now we're like, okay, so now let's go figure out what's actually happening here. Is it like, oh, we don't have enough ads running to this area? And so we're trying to find the constraint. We we so we found the constraint is cost per call booking was the constraint in the goal that we so we set the goal of if we lower this, it's gonna impact us dramatically. So the constraint was cost per call booking. Does that kind of make sense? Yep. Okay. So if we identify that as the constraint, and by the way, whenever I'm identifying a constraint, I like to walk, walk the process. So what this means is go in and walk through every single step that you do in the process of the area you think you're having a constraint. So I'm trying to think of an example. I was on with another client and I walked this process with her. And hers was acquisition. And so we go in and I get all of her different numbers, and I'm walking the process. I said, okay, Naya, we're looking at all of her stuff, and her numbers are looking pretty good, but she's just struggling to like scale metrics. So I was like, okay, let's see what is your ad spend, what's your return on ad spend, what's your CPA, what's your cost per click, what's your ad to cart. I'm just following the journey of a customer, right? Then I'm going down. What's your what's your website conversion rate? We go down, and it's like, okay, this stuff isn't too too terrible. Now we go to the next process. So those are all the stats of the entire funnel. Then I'm like, okay, walk me through how much time are you spending on creative? How many new creatives are you launching per week? How so I asked her those kinds of questions. And you know, we found out the constraints. Was she's not actually launching enough creatives to support the ad spend that she has. See, a lot of people, this was another conversation yesterday. Someone started with us and they're spending like $500 a day on ads, and now he's spending over $2,300 a day, and he's still only launching five creatives a week. I'm like, dude, you need to be launching 15 to 20 creatives a week. That's why things are starting to like plateau because it's like it's not expanding into new audiences. Yep. And so what we found was the actual constraint in it was we need to, you need to, the constraint is you that you're not putting enough time to creative. Go bump this up to 15 to 20 creatives a week, and then we're gonna measure on this and come back. Yep. So set the goal, use the goal, the the constraint areas to kind of get where you're going. Identify the true constraint within the area that you need to do. So if call cost per call booking was a metric, we need to move, then it's like great. What are everything that has to do with that? Walk the process of every possible thing. If if yours is like, hey, my return on ads men is really, really bad, okay, great. Make the goal to go from a two row ads to a 2.75 ROAS. If that's the goal, then there are there's something in there that's constraining. It might be a skill set, it might be the volume of ads that you're launching, it might be your messaging. There's some constraint in there that will, if you can fix the thing, it will change everything. Now, sometimes it is conversion rate, sometimes it's intent, it's add-to-cart, et cetera.

SPEAKER_00 23:18

I mean, it could even be like your CPA is too high, your AOV is too low, your CPA is good, but your AOV is too low, your add-to-cart is too high, like even metrics like that could be the constraint, but then there's a lot of other things underneath of that that you would actually have to solve to fix that thing. Yeah.

SPEAKER_01 23:36

Right. Yeah. I mean, and there's so much. It's like, well, is your pop-up converting at five to 10% of people when they get there too? Like, there's just so much that fun now that's probably not the constraint, but there is a constraint in your business, and you gotta really get down to that. And you should spend time thinking, spend an hour a week, block an hour a week to literally say, what's the number one constraint in my business? And every day, try to spend 30 minutes at least working on the number one constraint in your business, and you will you will unlock things. It's crazy. Now, once you've identified the constraint, how do you know how do you begin tackling the constraint?

SPEAKER_00 24:13

Would you say my first thought would be you you identify the constraint and then you need to figure out what are all of the things in the business, kind of kind of like what you just said, walking the process, what are all the things in the business that go towards creating that constraint, or that if I were to open this up, it would open up the constraint. But if you if you just say, like if we use a conversion rate example, I need to get my conversion rate up, the you would have to figure out what are all the things underneath of the conversion rate that could play a role in increasing that conversion rate. And then once you've identified all of those things, you have to identify the one thing that would be like the the one that's highest leverage, unless I'm so that would be kind of identifying the constraint, but then it's like, well, how much time and attention do I put into the thing?

SPEAKER_01 25:10

Gotcha. And so this is where I would say the next thing I'm gonna do is we have to because once you've identified a constraint, do you just abandon everything you're doing and put all your attention on that? That makes sense. No, no, but you have to optimize existing resources. You have to optimize your existing resources and get the most goal-producing output possible from the constraint using existing resources. And then you have to ask yourself this question is how can we stop wasting capacity that we already have?

SPEAKER_00 25:45

And so that makes a lot of sense because then people are gonna say, if how am I supposed to fix this constraint? How am I supposed to put uh a ton of time and attention to this thing when I'm already spending 60 hours a week on my business? How am I how am I supposed to add this additional constraint opening process to already spending 60 hours a week in the business?

SPEAKER_01 26:07

Yeah, you have to, yeah, you have to basically say, I mean, this is the problem is like you identify if you identify major constraint in the business and you're like, okay, I don't have the time for this, well, you have to optimize for the time because the what's the alternative? Well, add more time to your plate, add more resource to the thing. And this is where you got to pull in team to help you out and lead them to help have them help optimize, find out what capacities are. And sometimes this means you just have to be okay with letting other fires burn that are not the constraint. That's the thing to think about. Like ask yourself the question. If I have all these things that I'm doing, and I've identified the number one constraint in the business that if I that I have a high confidence, if we fix this area and fix this thing, we would grow. Then it would be dumb to not look at everything else you're doing and say, hmm, which of these things, if I just stop doing and focus on the thing that I believe is a real constraint, would have no impact on the organization in a negative way. So you have to look at all the stuff you're doing. Now, we have a process for this called energy audit. Analyze all the stuff that you're doing. You should always know what you're doing every quarter. So look at all your tasks and say, like, hey, if I just didn't do this thing and it freed up five hours a week for me to work on the number one constraint, would the business be hurt? Now that's the other thing. You can't abandon activities, you can't abandon activities that would then create another constraint. So solving this constraint and allocating resource to it cannot, the rule is it cannot create another constraint because you gave up on it. So, for example, this does not mean you now have permission to stop launching ads every week because you're gonna go focus on.

SPEAKER_00 27:40

Wait, shoot, that's where I was hoping this was going. I thought I could use this as an excuse to not launch ads weekly.

SPEAKER_01 27:46

No, but I'll tell you what, though, this is gonna give you I'm gonna give a lot of you permission to just stop posting on social media. I'm telling you guys. I'm telling you guys. Like, if you want to get a lot of time back, social media is not gonna give you the impact that you think it might uh versus some other areas. Now, I'm not saying cut it entirely, but go lower the volume of things you're doing to make time for it. Sometimes, though, it's this is really easy, and it's like, oh, just optimize what we're already doing. Sometimes like the constraint is like, oh, no, no, this is not gonna take me very long, or someone on my team who's gonna be a part of this to actually just improve the process here. Like it's not gonna, I'm just optimizing what I'm doing, where it's like I'm just improving the flow. I'm and it's like a one-off project, which those are the best constraints. Which is, oh, we just do the project and it's done and we get the lift from that, but yet we don't have this ongoing resource.

SPEAKER_00 28:35

This is starting to get super meta because now you could ask the question that if you don't have time to solve constraints, then maybe that's your constraint. Uh-huh.

SPEAKER_02 28:46

Okay.

SPEAKER_00 28:46

Yeah, no, no. Because if you're not optimizing for time, like if you're like, I'm doing so much stuff, I don't have time to optimize constraints or optimize for solving constraints, then it sounds like that's probably the constraint because then you're definitely not spending time identifying the goal. You're definitely not spending time identifying the constraints, and then you definitely don't have time to solve for the constraints. That's great. No, that that's really maybe that's where everyone should start. That's really good.

SPEAKER_01 29:10

If you're yeah, if you're listening right now and you're like, there's no way in heck I have time to follow this process and try to identify the number one constraint in my business that will take me to the next level, then you are the constraint. Yeah. That's a really good add-in, Dylan. Great job there. And that might be the thing. Like I I believe, I believe that the three most high valuable, highest leverage things you can do as an entrepreneur is think, create, and lead. And thinking is where you're identifying the goal, identifying the constraint, and then creating and leading is what actually helps you execute the removal of that constraint. Yeah. And so you have to be working toward having time to do that. And if you play your cards right, I mean 80% of your time should be spent doing those three things as an entrepreneur if you want to be really compounded and leveraged. Okay, so number three, we're gonna optimize existing resources. Now, once we've exhausted that, then we move into step number four. This is where we're going to allocate additional resources. So we're gonna allocate additional resources. Now, what this means is we're going to this might this might look like hiring. This might look like bringing in a consultant or a coach or somebody that has been there done that. And those additional resources will help you unlock that constraint that you're having in the business. The good example of this is when we identified our constraint, we solved the constraint and we overshot it. Cost per call booking is dropped to like more less than half. It was like 260 or 50 something right now. I think we're even lower than that. The lowest we've ever ever had. You know what it was? Freaking the constraint was we optimized everything we possibly could. 30 day file, they get an email every day for 30 days when they buy our thing. We optimized the thank you page, we optimize the portal, we optimize all of this stuff. We even ran a call booking campaign for retargeting. Like we optimized everything that we could, and then we move to the next step, which was actually the solve for us. And that was we just hired a d another person to do appointment setting, Heather, and she's amazing. And you know what? That cut our cost per call booking well below the 400 into the like 250-ish range.

SPEAKER_00 31:15

Which is interesting because when you look at step three and step four, optimize existing resources. I think your brain automatically goes to time, which I think, especially as you're a smaller business trying to figure this out, time is the resource that is the most constrained because it's probably just you. So that makes sense. But then when you get to a certain point, then the resources could actually be money. And then it could look like freeing up, optimizing existing resources, freeing up money for a situation where it's hiring someone, hiring a coach, hiring, figuring that thing out. So resources is not just time, but it could also be money depending on how do you know if there's a way that you would identify if I guess maybe same situation is like, is my constraint money or is my constraint time and then optimize it that way? Like, how do you identify what resources you need to optimize?

SPEAKER_01 32:10

You have a way for that I would look at what the constraint is, yeah, and then I would go from there. So let me just use yeah, let me just use an example. So when I assume this other one-on-one, we found out cash was the constraint. Yep. So they were like, they were not demand constrained, they were not acquisition constrained, they were not even, they were technically fulfillment constrained, but fulfillment is because they didn't have enough stuff, they have stuff arriving in two weeks, and then and so like she's like, Well, I'm fulfillment constrained. And we were like, I walked the whole thing. I said, actually, you're not. Because if you place an order, the $50,000 PO you need to write now, you would have enough stuff arriving when you need it in order to scale through Q4, like double last year's revenue. Yep. And so you're actually decoy constrained in fulfillment, you're actually constrained in ops in the cash position. Yep. And so that was the constraint for her. And so her goal became grow cash position to, I think it was 50K. I can't remember. I'm kind of blanket. It's like grow cash position for inventory to 50K and for her inventory account because she profit first. So the goal is go from whatever it was to 50K. So go from, I'll just say 25 to 50K. Yeah. By August 31st. And that's what we set the goal as. And so that's the goal. Constraint is cash. Now, how do I optimize that? I'm like, okay, great. Well, we have to get your cash up. How can we get your cash up? Well, we can't spend our way into with ads because the ad spend will slow that down because you're now gonna have to pay for the ads. Yep. So, what are all the levers that we can optimize and pool right now that don't involve additional added expense? That makes sense. And so she we looked it all all the way through, and I said, and she's like, Well, email an SMS. I have my organic. I'm trying to think, that's probably the most I could think about. I'm like, yeah, yeah, makes a lot of sense. Do you have another product coming in two weeks for a launch? So two things. Number one, run a promo sprint, back to school promo sprint coming out of summer, do a sale site wide or on all or on all the things that are like you're trying to like eliminate the SKUs because she gets new stuff every season. I'm like, so we're just gonna we're gonna discount these things, run a huge promo sprint, we're gonna get a huge infusion of cash from your email and SMS database. Two weeks later, you're then gonna run a brand new product drop that's not discounted at all. Everything's back to full rate, so you're gonna have maximum profitability and cash injection there. Those two things will get you to the cash position you need by the end of the month.

SPEAKER_00 34:34

Yep. And then I guess at that point, so we optimize the existing. And then the allocating additional resources was saying you now need to go do this thing, run a promo sprint. So you optimized for what are the things that I can actually do to solve the constraint, and then you allocated resources, which was time to the promo sprint.

SPEAKER_01 34:52

Yes, which she already planned on doing one promo sprint. So I was like, great, we're gonna add additional resources, we're gonna do two this month. Yeah, one's a new launch, one's a end of summer sale. And send her a spectruscore. I forget we, I think it was end of summer sale, actually. So we're just adding a little bit additional there, and that solves it. Sometimes, by the way, you don't even have to allocate additional resources, you just literally optimize the existing. That solves the constraint. You're done.

SPEAKER_00 35:12

And I think in that example, it's kind of interesting because she was already doing the promo sprint, but she didn't identify that doing that promo sprint was a thing that was actually going to set her up for Q4. Like she could have just done the promo sprint and said, great, I got some extra cash, but not actually realize that, oh, getting that extra cash opens up my constraint for Q4 of being able to buy more inventory. So I think like if you if you look at the constraint, identify the constraint, then maybe even the thing you're already doing is going to solve your constraint if you look at it that way. Does that make sense?

SPEAKER_01 35:44

Yes. And I guess there's that just comes back to intentionality. Yeah. So I mean, so like, yes, I would agree with that. Yeah, I would, I would agree with that. I would say most often most often what you're doing has to change pretty drastically to solve constraints. Yeah. That that's an example that was like uh that was an example that was like probably just mostly existing resources. But the example of like you need to allocate additional resources, like Naya, you need to double or triple your creative output. That's gonna take additional resources to do that. So then you go and say, okay, by adding additional resources, is there a capacity to handle that? Or if not, what do we need to free up in order to do that? Okay, once we've walked this process, we're working through, we've solved the constraint. What's the final thing that we need to do?

SPEAKER_00 36:32

You've solved the constraint, you said?

SPEAKER_01 36:33

Yep, we've gone all the way through. What's the goal? Go from here to here in this period of time. Here's a constraint that I'm solving that I need to tackle. I've optimized existing, I've allocated additional. I've solved the constraint. What's the final thing?

SPEAKER_00 36:46

I think this is pretty easy. I think you just pack it up and go home. No, I think you go back and and do it again.

unknown 36:53

Yep.

SPEAKER_01 36:54

Would be my guess. You just repeat it and you repeat this process. Guys, like this is, I'm telling you, this needs to be one of the things that you start to think about inside your business. You have to say every week, what is the constraint that I'm working on? And every day, go look at that constraint. Look at the numbers. Say I'm trying to go from this cash position to this cash position. What does that mean? I have to measure cash position every day. I should always know every day my cash position, which by the way, I do. I tell of our, I mean, I tell our clients we work with, know your cash position, your debt position every single day. That's the first thing. When I'm on a meeting with Bree, my executive assistant, every day, first thing she says is cash position is $1 billion, debt position is zero. And that's what she says every day. Well, I've heard different numbers.

SPEAKER_00 37:36

Is someone lying to me?

SPEAKER_01 37:38

She starts with that every day because I need to, I, I, I need to know I'm gonna focus on the thing and make sure that I mean, first of all, it's a good practice as an entrepreneur anyway. But focus every day, look at the goal, know what the constraint is, and try to dedicate a minimum of at least 30 minutes. I'm telling you your whole business and your whole life will change.

unknown 37:58

Cool.

SPEAKER_01 37:59

That's it. Theory of constraints for e-commerce, my little take on it. And if you found it valuable, we'd appreciate it. Please give us a review or drop a if you're on Apple, give us a review, at least a rating on Spotify and Apple. And if you're on YouTube, drop a comment below. What was like the big takeaway for you in this? We'd appreciate it. Give us a little thumbs up and hit subscribe. Other than that, we appreciate you guys, and uh, we'll see you in the next episode.