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A business grows only as fast as its tightest limit — demand, capacity, cash, the owner's time or supply; find it from the figures and the signs, price what it turns away, and find where the next constraint takes over before spending to relieve it.
Paper packet. Every task here also exists on screen, where it is checked automatically; answers written on paper are not assessed by Nydus. When you are back at a device, enter your answers there.
You will find how much a business can sell given its limits, name the constraint, read constraints from the signs a business shows, price what a constraint costs, and work out where the next constraint takes over.
A process's bottleneck is its slowest step, and the focus lesson ranked offers by contribution per scarce hour. A whole business has the same thing on a larger scale: one limit, tighter than the rest, that decides how far it can grow this month.
| Term | What it means |
|---|---|
| Growth constraint | The tightest limit on how much a business can sell this month. |
| Demand | The work customers ask for. |
| Capacity | The work the people and equipment can do. |
| Cash limit | The work the money on hand can fund, such as materials bought ahead. |
| Owner's time | Work only the owner can do: quotes, key customers, decisions. |
| Next constraint | The limit that binds once the current constraint is relieved. |
Northside Repairs, next month:
It will complete 180 — the smallest. Capacity is the constraint. More advertising adds requests the workshop cannot do; a bigger parts budget buys parts that sit on the shelf. Only more capacity adds repairs, and only up to 210, where cash takes over as the constraint.
$$\text{output} = \min(\text{demand}, \text{capacity}, \text{cash limit}, \dots)$$
The constraint also has a price. The 60 repairs turned away, at 25 dollars of contribution each, cost the workshop 1,500 a month: that is the most it would be worth paying, each month, to relieve the constraint.
This is why growth advice is so often wrong for a particular business: 'advertise more' is right when demand is the limit and a waste when it is not.
Another way: table
Northside Repairs' limits next month.
| Limit | Repairs it allows |
|---|---|
| Demand | 240 |
| Capacity | 180 |
| Cash for parts | 210 |
Another way: steps
Put every limit in the same unit. Repairs a month, cleans a week, mugs a month. Capacity in hours has to be turned into units: two mechanics with 180 bench hours a month, at an hour a repair, can do 180 repairs. Cash has to be turned into units too: 4,200 dollars of parts budget at 20 dollars a repair covers 210.
Take the smallest. That is the month's output, and the limit that set it is the constraint.
Price it. Demand less output is the work turned away; times the contribution a unit, it is what the constraint costs each month.
Find the next constraint. Raise the constraint in the arithmetic and see which limit binds next, and at what output.
Check by looking for the signs. If the numbers say capacity is the constraint, there should be a waiting list or turned-down work. If the numbers say demand, there should be spare hours. A mismatch means one of the limits was measured wrongly — often capacity, which owners tend to overstate by forgetting setup, travel and breaks.
Figures for every limit are not always to hand, and the business shows its constraint in other ways. A waiting list or turned-down work means capacity. Empty slots and idle equipment mean demand. Orders refused because inventory cannot be bought mean cash. Everything waiting on the owner — quotes, orders, decisions — means the owner's time, the most common constraint in a small business and the one owners least like to see.
Supply is the fifth. A bakery that can get only so much of a particular flour, a florist whose grower can send only so many peonies, a café that can hire only so many trained baristas in its town: each is limited by an input it cannot buy more of at any price. Supply constraints are relieved by finding a second source or a substitute input, not by more effort.
Relieve one, and the next smallest takes over: the workshop's new mechanic lifts it from 180 to 210 repairs, not to 240, because cash then binds. Knowing the next constraint before relieving the first stops the owner paying for capacity that ends up half used. It also shows what the decision is really worth: the mechanic adds 30 repairs, not 60, and the value of relieving the constraint is 30 × 25 = 750 a month, not 1,500, unless the cash limit is raised at the same time.
Constraints also move with the seasons. A garden business is limited by demand in winter and by crew capacity in spring; a gift maker by demand in March and by her own hours in November. The constraint worth relieving is the one that binds in the months that carry the year.
In many small businesses the tightest limit is the owner: every quote, every difficult customer, every order to a supplier goes through one person. It is easy to miss, because the owner is busy all the time and the business feels full. The numbers make it visible. If quotes can only be done by the owner in 15 hours a month, at an hour and a half each, the business can take on at most 10 new jobs a month, however many are requested and however large the crew.
Relieving the owner constraint is the subject of the next lessons: standardizing work so others can do it, training, and deciding what only the owner should do. The first step is simply to measure it.
The cost of misreading the constraint is not only wasted money; it is often damage. Advertising when capacity is the limit lengthens the waiting list, and customers who wait too long leave and tell others. Hiring when demand is the limit adds a wage with no extra sales. Buying equipment when the owner is the limit adds a machine that waits for the owner too. Each is a sensible move in the right business and a harmful one in the wrong one, which is why this lesson comes before any lesson about how to grow.
Measuring each limit in the same unit takes some care, and the errors are predictable. Capacity is usually overstated, because owners count the hours people are at work rather than the hours they can spend on the constrained task. A mechanic on a nine-hour day spends perhaps six and a half at the bench once parts runs, customer conversations and cleaning are counted. Timing a week of real work, even roughly, gives a far better figure than the rota.
Demand is often understated, because turned-away work leaves no record. A customer who calls, hears the waiting time and hangs up does not appear in the bookings. A simple tally sheet by the phone — one mark for every inquiry that did not become a booking, and why — measures the demand the business is not serving, and it usually surprises the owner.
Cash is the limit owners find hardest to turn into units. It becomes one through the materials and wages that must be paid before the work is paid for: a parts budget of 4,200 at 20 dollars a repair covers 210 repairs; a clay budget of 900 at 3 dollars of clay a mug covers 300 mugs. Where the customer pays before the materials are bought, cash is rarely the constraint; where the customer pays weeks after, it often is.
The owner's time needs the most honesty. List the tasks that only the owner can do, time them for a fortnight's worth of real work, and divide the hours available by the hours each unit of work needs from the owner. The result is often lower than any other limit, and it explains why a business with a full crew, customers waiting and money in the bank still cannot grow.
Once each limit is in the same unit, the smallest is the constraint and the gap between it and demand is the work the business is turning away. That figure, priced at its contribution, is the budget for everything the next lesson considers.
A print shop was turning away work every week, and its owner assumed the presses were the problem. He was quoted 38,000 dollars for a faster press and nearly signed. His accountant asked him first to count each limit for a typical month.
Customers asked for about 420 jobs. The two presses, running the hours the shop was open, could print about 520. The finishing table — trimming, folding and binding, done by one person — could handle about 360. The limit was finishing, not printing: the shop was completing 360 jobs and turning away 60, and a faster press would have added exactly none of them. At about 45 dollars of contribution a job, the constraint cost 2,700 a month.
He spent 6,500 on a second finishing table and a part-time finisher at about 1,400 a month. Output rose to 420 — demand then became the limit — and the extra 60 jobs brought 2,700 a month against 1,400 of new wages. The fast press was bought two years later, when demand had grown past what the old presses could print, and by then the owner counted every limit before buying anything.
Factories, hospitals and call centers all manage their tightest limit first, because an hour lost there is an hour lost to the whole organization, while an hour saved anywhere else is only an hour of idle time. A small business is the same system with fewer parts.
More customers always means more growth. Only when demand is the limit.
Fix every limit at once. Only the tightest one adds sales.
Relieving the constraint removes all limits. The next one takes over.
The gain from relieving it is the capacity added. Only up to the next limit.
The owner is never the constraint. In small businesses the owner often is.
Every limit is worth relieving. Only the smallest limit decides the output; relieving any other adds cost and no sales. Measure all of them, then spend on the one that binds.
The constraint never moves. Once it is relieved, the next smallest limit takes over, and effort follows it. A business that keeps investing in yesterday's constraint buys capacity it cannot use, and it pays for that capacity every month until it notices.
Measure the limits.
$\text{orders } 500; \ \text{kiln } 600; \ \text{throwing } 350$
Mugs a month.
Take the smallest.
$\min(500, 600, 350) = 350$
Her throwing time is the constraint.
Price the constraint.
$(500 - 350) \times 18 = 2700$
Contribution turned away a month.
Find the next constraint with an assistant.
$\min(500, 600, 350 + 200) = 500$
Orders then bind.
Name the effort that helps.
$\text{an assistant who can throw}$
A kiln upgrade or more marketing would add nothing.
Turn bench hours into repairs.
$180 \text{ hours} \div 1 = 180$
An hour a repair.
Turn the parts budget into repairs.
$4200 \div 20 = 210$
Twenty dollars of parts a repair.
Take the smallest with demand.
$\min(240, 180, 210) = 180$
Capacity binds.
Price the constraint.
$(240 - 180) \times 25 = 1500$
A month.
Find the output with a new mechanic.
$\min(240, 240, 210) = 210$
Cash then binds.
Value the mechanic.
$30 \times 25 = 750$
Half what the full capacity would suggest.
Measure the demand.
$220 \text{ cleans asked for}$
A month.
Measure the cleaners.
$260$
Hours turned into cleans.
Measure the van.
$200$
Trips it can make.
Take the smallest.
$\min(220, 260, 200) = 200$
The van is the constraint.
Price the constraint.
$(220 - 200) \times 40 = 800$
A month.
Find the next constraint with a second van.
$\min(220, 260, 400) = 220$
Demand binds.
Value the second van.
$20 \times 40 = 800$
Set against its cost in the decision break-even.
Take the smallest limit.
$\min(1300 \text{ asked}, 1200 \text{ kitchen}, 1400 \text{ counter}) = 1200$
The kitchen is the constraint.
Price the constraint.
$100 \times 6 = 600$
A month of turned-away lunches.
Find the next constraint if the kitchen reached 1400.
Next month, Northside Repairs has $170$ repairs asked for. Its mechanics can complete $130$, and the parts it can afford to stock cover $180$. How many repairs can it complete next month?
Answer:
Complete the worked solution: every garden-design job starts with a site quote that only the owner can do, taking $2$ hours. She has $14$ hours a month for quotes. The business gets $35$ requests a month, and its crew could build $45$ jobs. Each job contributes $890$ dollars. Measure the constraint.
Divide the owner's hours by the hours a quote takes.
$14 \div 2 =$ q
Quotes she can do a month.
Take the smallest of the three limits.
$\min((\text{quotes}), 35, 45) =$ o
Jobs the business can take.
Take that from the requests.
$35 - (\text{jobs taken}) =$ l
Requests turned away.
Multiply by a job's contribution.
$(\text{turned away}) \times 890 =$ v
What the constraint costs each month.
Name the constraint.
$\text{the owner's time}$
The crew and the demand both have room.
Next month, Northside Repairs has $290$ repairs asked for. Its mechanics can complete $120$, and the parts it can afford to stock cover $200$. Which is holding the business back next month?
Match each sign to the constraint it points to.
| Capacity | Demand | Cash | The owner's time | |
|---|---|---|---|---|
| Customers wait $3$ weeks for a slot | ||||
| Half the calendar is empty | ||||
| A café wants a big order, but there's no money for the clay | ||||
| Only the owner can quote, and she is booked solid |
Bright Home Cleaning gets $280$ requests a month; its cleaners can do $180$; its one van can reach $240$. A new cleaner would add $80$ cleans of capacity. Each clean contributes $37$ dollars. Fill in what the new cleaner does.
| Amount | |
|---|---|
| Cleans a month now | |
| Cleans a month with the new cleaner | |
| Extra cleans | |
| Extra contribution a month, dollars |
Maya receives orders for $460$ mugs a month but can throw only $150$; her kiln, clay budget and customers could all support more. Each mug contributes $21$ dollars. How much contribution a month does her throwing time turn away?
Answer:
A dog-walking business gets requests for $125$ walks a week. Its walkers have time for $212$, and its van can carry dogs for $204$. Fill in the figures.
| Amount | |
|---|---|
| Walks a week it can do | |
| Walkers' spare capacity | |
| Van's spare capacity |
Lesson test: one question per skill, one attempt each, no hints. Your answers are checked when you submit.
Northside Repairs has $270$ repairs asked for a month, capacity for $170$, and parts cash for $220$. A new mechanic would add capacity for $60$ more. Complete the sentence.
With the new mechanic the workshop would complete e repairs a month, g more than now.
You can say what is actually stopping a business from growing, and what it costs. Tell someone why 'advertise more' is sometimes a waste. Next: comparing ways to relieve a constraint.
17. Your turn: Neighborhood Kitchen at lunch, step 3
$\min(1300, 1400, 1400) = 1300$
Demand binds.