If you drive, there’s a nifty app that is probably on your smartphone, no matter where you live. It’s called Waze, and it mixes an old school GPS with two more things: continuous live updates of road conditions and of construction and other hazards, and gamification, where you receive (worthless, sorry…) points for reporting things like a hidden police trap or a car on the road shoulder.
Because of its popularity and simplicity to use, it’s a very good metaphor for a challenge faced in business: the bottleneck.
When you eat a freeze-pop, one of those plastic sleeve ices, you simply push the pop up and it goes into your mouth. If that same pop was not frozen (and if you were ever a kid, you can admit you’ve had non-frozen ices at least once growing up) you’d be able to drink it from the bag easily. You simply drink, as if from a straw, and out it comes.
But, when you drink a bottle of soda, you need to stop and allow air bubbles to go into the bottle every so often (“glug-glug-glug-glug-glug“) in order to allow more liquid to escape the bottle so you can drink it. Why is this?
Because of the bottleneck.
In Waze, bottlenecks would be bright red, thickly marked roads where traffic is going slowly. Assuming Waze thinks you can do better by driving elsewhere, it will suggest that alternate route, even while it may be longer in miles, if you will get to your destination sooner. (That's one of the reasons some peaceful neighborhoods near major commuter roads are quite unhappy with the traffic Waze is sending through their quiet neighborhoods… although I’d bet that the local gas station or convenience store might not be as upset as the guy who likes to do the crossword on his front porch in peace and quiet, as he’s done for the past 35 years, and which Waze has now robbed him the pleasure of enjoying the way he used to.)
A new client recently came to me. They manufacture a specialty cosmetics product, and they are growing nicely in sales at a very healthy annual clip, in the millions of dollars.
Yet, there was a problem. To keep their factory running at full capacity, they have been adding to inventory. So, they are selling at, say, 50 percent growth year over year, and their stock is growing by 65 percent year over year. So they are essentially less than the amount they are producing, which means that unless they can start doing more strategic marketing and move more product, they are turning cash (employee wages, raw materials, and so on) into something less valuable with far less liquidity.
Imagine buying postage stamps with your cash, but buying a million dollars’ worth, which you will use “over the next 10 years.” Sure there may be special instances when it is worthwhile (which is part of the marketing and psychology used in the “forever stamp” which can be used no matter how much postage goes up in the future). But for the average person, that would not be the most productive use of funds because while it sits there in stamps you have no access to the money, are not getting interest on the money, and if you needed to sell it to raise cash you’d have to give a substantial discount to its cash value. This was essentially my client's problem. (And, believe me, this client's facial product is not as easy to liquidate in extra stock as are postage stamps!)
There are many possibilities that can be done to help such a business. In my client's case, lowering the price is not an option we want to explore, and reducing staff is also not on the table.
Instead, we're focusing on the bottlenecks. Too much inventory? Well, if you won’t lower prices, create more demand for the product! Factory producing too much and you can’t get rid of any staff? Well, can you manufacture another product in the factory, or create a second brand for a different audience or at a lower price point and that way lower the amount of inventory your produce until it’s down to the level you want?
Every business can be diagrammed very much like a family tree, or a system or roads and highways. By mapping every step from “email from new potential client” over to “item shipped,” you can identify where those red bottlenecks are, and work to remove them. This makes the entire company more efficient, and enables you to focus on where the bottlenecks are and how they affect everything else.
Eli Goldratt’s wonderful book, The Goal, is a must read for understanding business bottlenecks and why common, fuddy-duddy thought about what efficiency is and how businesses actually make (or lose) money while they don’t understand what is going on.
There are homeless folks who go to their local Division of Motor Vehicles, wait on line, get a ticket, and then go back on line every half hour or so to get a ticket... and then sell those tickets to people who have a three-hour wait and can save three hours by buying the ticket with a much sooner time-to-window for a mere $20. Isn’t that entrepreneurial thinking from the fellow trying to ern a few dollars for food as a way to earn money by saving people time?
But why would that business work? It works because there is a bottleneck in the DMV -- a period of time where people come and are forced to wait in line for a long time until it is their turn. So, what our enterprising gentleman has done, when you think about it, is identified a bottleneck in someone else’s day (yours as a guest of the DMV to get your license plates) and developed it into its own business idea. This works until the other business somehow removes that bottleneck, thus removing the ability for the others to profit off it.
Treat your business like the roads less traveled. Map out the steps from beginning to end, what happens at each step, and discuss it with the personal in charge of that particular issue. You’ll identify what’s stopping you form moving to the next level and, who knows? You may even identify completely new business opportunities that the bottleneck creates.