AL #012: Release your Bottleneck

The thing holding your business back from growing is probably not what you think.

What is the most important thing to improve in your business right now?

Most people don't know the answer to that.

They work on what is most interesting to them or follow generic advice they found online. This could be:

• “Build product and talk to users”

• “Brand is everything”

• “Launch an MVP quickly”

• “Focus on raising money before you do anything”

• “Build your community to launch a token”

Instead of going with generic advice, there is a method to systemically identify the exact lever that is holding back your business from growing.

Theory of Constraints

It’s called the Theory of Constraints and was introduced in “The Goal” by Eliyahu Goldratt, one of the best management books (actually a novel) that I've read.

The idea is simple – every business is a complex system. The output (profit) of that system is constrained by one bottleneck at a time.

Computer scientists may refer to the maximum flow problem to get some intuition on why this works in practice.

If we can identify the bottleneck, it's also the highest priority lever to improve.

Here’s what you can do step-by-step to break through your current bottleneck.

1. Identify your current bottleneck

Alex Hormozi made a great video about how most businesses are bottlenecked by their inflow.

For any fixed percentage for customer retention, there's a minimum amount of customers that have to be onboarded every month to offset churn and that it’s larger than people think.

This also applies in the context of building crypto products.

Consider two types of companies:

The company that has product-market fit

A company that has product-market fit is able to expand their revenue with a customer or have very high retention.

Is this company bottlenecked by inflow?

Probably.

Since customers are efficiently retained, the only thing left is to pour more customers into the funnel.

There are cases where other bottlenecks can appear (e.g., market saturation) but those are rare.

The company that is looking for product-market fit

This is the more interesting case – a company without product market fit is usually looking to develop many product iterations while receiving customer feedback.

When missing product market fit, it’s tempting to think that the bottleneck is the product.

The solution? Spend more time building it?

Wrong.

Remember – your company is a complex system. The product is an output of the product development process.

While in some cases the user perspective is abundantly clear and the product just needs to be developed, often spending 3 months on a product is an excuse for not understanding user needs well enough to deliver something more incremental.

The bottleneck is still inflow.

In this case, you don't have enough quality potential customers to talk to.

My example

After some painful reflection, I've realized that most of my projects have been bottlenecked by inflow in the past (and it wasn't what I was prioritizing to fix).

The only projects that weren't are ones where inflow was taken care of by an external entity, e.g., business development arm of the business.

2. Take more steps to fix the bottleneck

If your actions were misaligned with the priority area (the bottleneck), this will come easy.

Even if that's not the case, it may still be right to double down.

It’s tempting to think that there's a clever “unlock”, an idea that could help release that bottleneck.

There often is.

But the way you discover that idea is usually by trying more things and getting real experience, not by problem solving.

3. Seek advice from an expert

If you're truly stuck and getting burned out on the effort, it may be a good time to get external help.

Get an advisor that has unlocked a similar bottleneck before and ask if there’s anything you're missing.

Unfortunate truth: they will still probably recommend doing a lot of work, but they may recommend a change of direction that will help you see more results.

4. Find the next bottleneck

The best part about the Theory of Constraints is that it is an infinite game.

No business is ever truly capped if you're open to releasing every bottleneck.

In some cases you won't want to. I'm personally very conservative about raising capital and hiring.

This could very well be my biggest bottleneck in crypto.

But a lot of times resource pumps help only indirectly.

You raise money and hire people. Then they find the bottleneck for you and fix it.

The bottleneck wasn't really the people, but getting more people helped identify it.

If you're attentive and unbiased, you’ll find the next bottleneck.

And the next one after that.