How to Regrow When Your Venture is Stuck in a Growth Plateau

When growth plateaus, people often think things are stuck forever, then slowly decline and eventually collapse. That is not true. You can change the situation by changing your cash allocation.

Maybe you think cash allocation is for big companies or cash-affluent companies. “If you have little cash, there is no cash allocation, you fool”? Actually, you are allocating your cash even if your business is making no cash. Today I’ll explain this and how to use it to break your plateau.

Think of an inbound-focused business. Inbound marketing attracts customers by creating valuable content without paying ad fees. This includes blogs, videos, podcasts, or even freemium products. You can advertise your product without paying anything, and you made your product yourself. All cash from the business goes directly to your personal bank account. So, no room for cash allocation?

Or maybe inbound marketing is not so successful, bringing in few customers. The situation is difficult to change, especially through cash allocation, because no cash allocation seems to be involved here. This situation lasts forever, until someday you get a lucky breakthrough?

Not at all. Your situation is not fixed. I’ll explain why and how to break a plateau. You can grow your business much faster by rethinking your ‘cash allocation’.

Example

Let’s dive into the example: a SaaS company where the founder and co-founder came from the same big tech company. They are developers who quit the company and started the business.

They chose YouTube as a channel to acquire their customers (maybe because one of the founders is a funny person). The growth was totally organic. They got a lot of requests from their customers. To accommodate these requests, they decided to hire a part-time developer.

They are getting customers organically, but it is very slow. They didn’t have any experience in marketing, and when they realized it, all 3 members were developers.

Now their product is great. The churn rate (customer quitting rate) is low. But potential customers don’t know your product exists. Their growth depends on how much the organic channel brings. They can’t control it except for making good content.

Inbound-focused companies often don’t have an idea of changing the situation using cash, as I mentioned.

And sadly, this company has almost no money to change things—at least they thought so. It seems like the situation is a stalemate.

TOC (Theory of Constraints) tells you the optimal cash allocation

To deal with this situation, the first thing to think about is TOC (Theory of Constraints). This was proposed in the book titled “The Goal” written by Eliyahu M. Goldratt, an operations management guru. This is about how to maximize output. He sees business activity as a series of interconnected steps. By finding constraints and eliminating them, business output increases.

For example, suppose your marketing ability is 20, sales is 30, and product is 100. Think of water going through holes whose sizes represent each phase.

Even if your product is great, the output is limited to your bottleneck of 20, because each step is interconnected. If one part only passes 20, the total output is limited by that. So you have to tackle the bottleneck first.

When you somehow ease the bottleneck and marketing ability becomes 40, sales becomes the new bottleneck. Each time your bottleneck changes, eliminate it and increase output.

In the example, the product is already good, and all the members are developers. Marketing is the bottleneck. No member has marketing experience. Hiring a marketer is a nice solution here. But where does that money come from?

Opportunity cost is a hidden cash source

Then the next concept enters, which is ‘opportunity cost’. Opportunity cost is the benefit you give up by choosing one option over another.

For example, if you take job A, which pays you $300, you can’t get job B, which gives you $100. This $100 is the loss from choosing job A. You compared job A and B and chose the better option. But you can’t get both of them.

Those founders are all developers. By choosing the tech co-founder, the founder lost the opportunity to choose a co-founder who is good at marketing or sales. You can have more than 3 founders, but your business has to feed them all. Also, your own company’s share dilutes.

Maybe if the founder fires the co-founder, the founder can hire a new co-founder who is good at marketing. It’s not impossible. Or, they can always fire the part-time developer to generate spare cash.

If you were not working on a product, you could work for a big company or work as a consultant, making decent cash. This is the opportunity cost. The founder can stop working on the product and realize the alternative.

Then hire a marketer to eliminate the bottleneck. Stop working as a developer until the product becomes a bottleneck. Your resources must be allocated so that they solve the bottleneck to maximize growth. You are only as strong as your weakest link.

Those are extreme examples, but you can see the situation is not as fixed as you thought. Those are totally feasible, and if that is the best way to maximize growth, you should do that.

You might think, “We can’t stop developing because we need to make the best product before scaling.”, “If we make the best product, acquiring customers will be much easier.” Or, “We’re in a highly competitive market—if we stop developing, our competitors will take over.”

These thoughts easily justify the situation.

But is a 3-developer organization the best way to achieve growth? Have a flexible view.

Conclusion

For inbound-focused companies, spending cash should not be seen as a failure. Even if you spend cash, if it brings in more cash, it’s no problem.

First, you have to identify the bottleneck, then you use every resource to eliminate the bottleneck. Even if that means you quitting your business for a while.

Resources are not fixed. You can reallocate them by thinking about what the opportunity cost is in your situation.