The Theory of Constraints

The goal is essentially to increase net-profit while increasing return on investment and increasing cash flow.

Today we’re discussing The Goal by Eliyahu M. Goldratt. It is a business novel that Eliyahu used to introduce the “Theory of Constraints”, a sort of meta-theory for business (and life, really) that you can use to advance the output of just about any system. It is very much a “zero-to-one” book, where you’ll see the world differently after reading.

We cover a wide range of topics, including:

• Improving all of your systems with the Theory of Constraints
• Discovering bottlenecks in various systems and effectively optimizing them
• Identifying your goal and making positive progress towards it
• Becoming a better manager or employee by using the Theory of Constraints
• Improving your time-management skills, productivity, and workflow
• Useful mental hacks for waking up easier and for making habits stick

And much more. Please enjoy, and be sure to grab a copy of The Goal and to check out Nat’s Notes on the book!

If you enjoyed this episode, be sure to check out our other episode on How to Think Like Elon Musk, to emulate Musk’s way of thinking for extreme advantages, and our episode on Antifragile, to learn how to profit from chaos.

Mentioned in the show:

• The Theory of Constraints [1:13]
• AlphaLab [5:31]
• Sumo [7:35]
• Zirtual [12:13]
• Unlimited Brewing Company [13:21]
• Growth Machine [18:26]
• Joe Rogan Podcast [28:20]
• Nat’s article on how to start a podcast [39:37]
• Deep House Relax on Spotify [40:28] (Nat and Neil’s favorite playlist for deep work)
• Last of the Mohicans’ soundtrack [40:39]
• Halo soundtrack [40:45]
• Matrix soundtrack [40:51]
• Tron soundtrack [40:52]
• The Magician on Soundcloud [43:05]
• OWSLA and Skrillex mix [43:24]
• Praxis on Medium [45:45]
• Medium [45:45]
• Getting Stuff Done Like a Boss course [46:34]
• Building a Second Brain course [46:45]
• The Forcing Function [47:00]
• Nat Chat podcast [47:02]
• Nat Chat episode with Chris Sparks [47:02]
• Tiago Forte’s main courses [47:09]
• Neil’s post on viewing books similar to VC [48:00]
• Four Sigmatic’s Mushroom Coffee [1:02:18]
• Athletic Greens [1:02:28]
• Game of Thrones [1:05:48]
• Stranger Things [1:05:49]
• Buffer [1:07:57]
• Made You Think episode on Thinking Like Elon Musk [1:09:18]
• Tesla [1:09:18]
• Boosted Board [1:11:28]
• How to Legally Own People article [1:13:26]

Books mentioned:

• The Goal (Nat’s Notes)
• Antifragile [4:29] (Made You Think episode) (Nat’s Notes)
• Work Clean [50:22] (episode coming 12-19 or 12-26) (Nat’s Notes)
• Principles [52:17] (episode coming 12-5) (Nat’s Notes)
• Emergency [1:19:43] (Made You Think episode) (Nat’s Notes)

People mentioned:

• Eliyahu M. Goldratt
• Zak Slayback [4:04]
• Joe Rogan [28:20]
• Daft Punk [40:55]
• Rapper Nas [41:55]
• Lil Wayne [41:58]
• Future [42:02]
• Ivan Pavlov [43:22]
• Adil Majid [43:29]
• Tiago Forte [45:32]
• Chris Sparks [46:59]
• Elon Musk [1:09:18]
• Nassim Nicholas Taleb [1:13:26]

0:00 - Introductory quote, a bit of background on the book and the author, and how you can use this book to help you out in both business and in life.

7:24 - Some examples from the book applied to the real-world and some flaws in various business systems.

10:36 - What the actual goal is for various systems, some details on the goal’s infrastructure, and why these three metrics are important. “The goal is essentially to increase net-profit while increasing return on investment and increasing cash flow.”

19:40 - The next part on the daily goal metrics (throughput, inventory, and operational expense) and some details on those.

21:10 - How to use these metrics if you’re not a manager or a CEO and are without a big-picture perspective. Also, some discussion on these metrics, applying them to members of a system, and some real-world examples.

28:44 - Figuring out all of these metrics and operations and then applying them in day-to-day situations. The beginning of how the main character in the story does this.

30:47 - The bottleneck issue from the book and applying it to real-world scenarios, the funny story of discovering and solving the bottleneck from the book, and some discussion on it. (Tangent #1 at 31:29)

35:05 - The order for optimizing around a bottleneck properly. Also, some examples of optimizing various bottlenecks and improving your time management skills. Nat and Neil’s favorite music for working, as well.

41:00 - (Tangent #2) The issue with typing the words to a song or podcast instead of the words meant for your writing and some more thoughts of various music types for various types of work.

43:49 - The Theory of Constraints coming into play in the book and some information on Tiago Forte and his courses on improving systems, creative output, and productivity.

47:48 - Books and small investments improving your ROI ($10-$20 books possibly giving you insights that make you $1000+, save you time, or offer valuable enjoyment) and some thoughts on doing your quality insurance before you buy books.

50:22 - Discussion on the book Work Clean and some ideas from it for improving your peace of mind, organizational ability, and productivity.

52:29 - The idea of losing an hour on the bottleneck which is not just being lost to the bottleneck, but to the whole system. Also, being a better manager by analyzing not only possible bottlenecks with others, but for your own bottlenecks, as well.

57:04 - Examining your life for possible scenarios that create bottlenecks for you (drinking and eating unhealthy afterward, etc) and fixing those scenarios. Also, some useful mental hacks for waking up easier at 1:00:36 and 1:01:38.

1:02:10 - Waking up and daisy-chaining your habits immediately afterward. Some explanation and examples of doing this.

1:03:55 - Applying the Theory of Constraints to creative work and making sure you apply the theory towards positive things instead of negative things.

1:09:37 - The steps for identifying the constraints within a system and then beginning to fix them. Some issues on having someone on salary versus hourly, compensating people for their work, and having slack in a system discussed here, as well.

1:16:23 - Some last thoughts and some pieces of advice for others on goals and systems.

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What is the bottleneck and how do I optimize around the bottleneck right now?

To even identify what the bottleneck is, you really need to clearly identify the goal.