What's holding you back? A simple signal.
Introducing the limiting factor. Plus, Lisa Allen's story and the Theory of Constraints.
Hi all,
Welcome to the second edition of Signals & Stories. Like The Godfather Part II, I hope it’s just as good (if not better) than the first edition. I’ll just have to use a different analogy for the third edition…
If you have any thoughts or feedback on the articles, feel free to send me a note or leave a comment on the Substack website.
Thank you very much for reading, and I hope you have a good start to the week.
—Brendan
📖 The Story
In an alternate universe, I reign as the CEO of the latest luxury craze—Widgettes. Imagine the standard widget, but gilded with glamour and peddled by the most dazzling influencers, including Alix Earle and another who looks suspiciously related to Sade.
We’ve dumped money into promotions and marketing. Customer orders are off the charts—the “Alix Earle effect”. There’s only one problem: our factory overseas can’t keep up with demand. A classic bottleneck. Widgette deliveries are not just late; they’re a calendar page behind. As the delays lengthen, my reputation online takes a nosedive, and I get torn to shreds in the comments section of TikTok videos—which I can’t actually see because I don’t have social media.
Smelling potential widget riches, a new competitor steps-in to offer a rival product, Wi-Jets. Wi-Jets are able to scale their growth more effectively, maintaining excellent customer service and product quality along the way. Before long, Wi-Jets are the luxury widget of choice, and Widgettes are relegated to the annals of failed luxury fads.
🧠 The Signal
One of the most critical—and overlooked—concepts in system thinking is the limiting factor. A limiting factor is the one factor that holds back a system (such as a business, economy, or forest) from further growth. In my (fictional) story, the limiting factor was manufacturing capacity. No matter how many new customers we got or how much ebullient press we received from groveling journalists, we could not grow further because our manufacturing issues kept us at a low ceiling. Eventually, that limitation festered into a fatal flaw.
Limiting factors are common across many domains. The below examples are all from Donella Meadows’ neural-volume-expanding book Thinking in Systems:
Economics: “Rich countries transfer capital or technology to poor ones and wonder why the economies of the receiving countries still don’t develop, never thinking that capital or technology may not be the most limiting factors.”
Agriculture: In growing a patch of grain, “it doesn’t matter how much nitrogen is available to the grain, […], if what’s short is phosphorus. It does no good to pour on more phosphorus, if the problem is low potassium.”
Personal Growth: “Children will not thrive without protein, no matter how many carbohydrates they eat.”
If it’s our goal to grow a business, community or skill set, we must be aware of the limiting factor at a given point in time. As we address one factor and move forward, a new limiting factor will then appear and constrain further growth. Our ability to grow is therefore proportional to our ability to continually anticipate and address new limiting factors.
As Donella Meadows writes in Thinking in Systems:
“There always will be limits to growth. They can be self-imposed. If they aren’t, they will be system-imposed. No physical entity can grow forever. If company managers, city governments, the human population do not choose and enforce their own limits to keep growth within the capacity of the supporting environment, then the environment will choose and enforce limits.”
Limiting factors will always be present in any system. It’s up to us to identify and address them.
To help us get familiar with them, let’s examine a few examples from personal life and business.
👨🏻Let’s Get Personal
Lisa Allen’s life was a mess. She had smoked since was 16, struggled with obesity and alcohol, and could never hold down a job for more than a year. She hit rock bottom when her husband left her for another woman in her early 30s.
Then Lisa changed everything, by changing one thing.
In only four years, Lisa quit smoking, lost 60 pounds, started a Master’s degree, bought a house, ran a marathon, and got engaged. How did she do it all?
Charles Duhigg tells the story in The Power of Habit:
“Lisa had focused on changing just one habit—smoking—at first. By focusing on one pattern—what is known as a “keystone habit”—Lisa had taught herself how to reprogram the other routines in her life, as well.”
When Lisa quit smoking, she replaced it with jogging. She slept, ate, and felt better, and other positive habits took root. Smoking had been the limiting factor in her life, and breaking it unleashed her true potential.
📈Let’s Get Down to Business
For a business, limiting factors are also often called “constraints”, from Eli Goldratt’s Theory of Constraints. Constraints are often physical, policy or market-related:
For startups, VC Todd Jackson of First Round Capital points out that a company’s limiting factor depends on the stage of product-market fit.
For seed and pre-seed startups, the limiting factor is often customer desirability (a market constraint). Do enough customers have the problem the startup is trying to solve?
For a later-stage startup with strong product-market fit, the limit is often related to efficiency (a physical constraint). Can the company scale their operations to profitably meet demand?
The important takeaway: limiting factors (aka constraints) are high leverage points where there is the most potential improvement per unit of effort. Limiting factors can severely constraint growth; other activities are ancillary until they are removed.
🎓 Further Reading
Thinking in Systems, Donella Meadows: A classic for developing the systems thinking mindset. "Thinking in Systems is required reading for anyone hoping to run a successful company, community, or country. Learning how to think in systems is now part of change-agent literacy. And this is the best book of its kind."―Hunter Lovins
Product-Market Fit Isn’t a Black Box — A New Framework to Help B2B Founders Find It, Faster, First Round Capital: This article isn’t related to limiting factors, but the theme of product-market fit came up towards the end of the article. This a helpful overview for those interested.
The Power of Habit, Charles Duhigg. I feel embarrassed recommending such an obvious bestseller, but it’s worth it!
Thanks for reading!
Signals & Stories is a newsletter that explores the recurring patterns we can recognize to make better decisions—in business and life.
If you like Signals & Stories, feel free to share with a friend or colleague.
—Brendan