The infinite loop is the critical success factor of a company’s evolving business success, and yet few operators pay careful attention to its working. The loop must be actively supervised by the CEO, who must remove the inevitable friction that can and will occur during the many growth phases of the company.
I have deployed and guarded the loop in every company I led or advised since 1998.
Introducing The Loop
The loop consists of a closed circle that composes the ecosystem of a company from individual cost centers of the business, generally listed as individual but interconnected spreadsheets in the operating plan.
In addition to the overhead incurred by finance and administration, we leave out here for simplicity, an example of the loop consists of marketing, sales, product development, and support, plus others needed to serve the unique needs of the business in question, with usually individual management-team members assigned to manage each cost center.
Going back to the engine analogy, the lines of businesses are the pistons that must be infused with incendiaries and timed correctly by the firing of spark plugs to make the engine function properly and smoothly. The car, from a thematic perspective, considered a collection of policies, with the embedded engine inside providing the ultimate driving experience securing the trust in customers to make a purchasing decision for the car.
Indeed, a customer evaluates the complete ecosystem, the reputation of the company, before they buy a product. The preeminent reason why a company must be run by the quality of its ecosystem, not merely the quality of its product (or service).
Pass the baton
Furthermore, the individual disciplines must shackle together like a chain in an unbreakable order. Marketing must lead to sales when product development and support provides the quality of service that attracts a greenfield of customers approached again by marketing. The performance of the company as efficient as the weakest link in the chain.
For a CEO that means the investments applied to each discipline must be measured by the performance it passes on to the next. The money infused in product development, for example, minus the cost of support must induce a better conversion from marketing to sales. Or otherwise, what is the point? Each discipline must carry the baton of improving value to the next, and the quest is to improve the weakest discipline in the chain to enhance the excellence of the ecosystem.
Having run the loop at every startup, I engaged with deploys the pursuit of excellence that reduces the variable cost of sales and marketing, steadily eating away at profit margins, from a more efficient increase in the fixed cost between product development and support.
Every company is unique in the way the loop is deployed, for the composition of the individual disciplines is unique to the critical success factors of the ecosystem of the company. No cookie-cutter approaches apply here.
I have also deployed the loop and the performance of the ecosystems at large and established companies. And found a technology company spending $16 million in marketing through a complex chain of stakeholders reaching salespeople who subsequently ignored the marketing spend and developed their own.
I also discovered some of the largest technology companies in the world; I was asked to advise, were implementing nothing other than a new product strategy, with no specificity of the other disciplines in the loop to complement the business objective. Falsely assuming one could just shove an emerging product through the same go-to-market pipeline as its prior cash-cow product.
As the CEO, I stopped all marketing at a consumer technology startup after I discovered the conversion rate of the product, from trial to purchase, to be only 11%. Meaning marketing was, in essence, inducing company-funded cannibalization of sales, instead of accelerating sales proportionate to marketing spend.
From the sideline, I have watched countless startup companies push immature products into a glaring greenfield with early and willing adopters, only to fizzle out in sales as lesser naive customers put a higher premium on robustness, reliance, and ecosystem ethos. In many of the latter cases, the capital efficiency dogmas preached by subprime venture investors rearing their ugly heads again.
The absence of the loop is a sure-fire indicator amateurs run the company.
Every company on the planet must deploy the loop, composed of unique disciplines to evoke what the company stands for.
The size of the slice indicates the magnitude of the investment in the discipline as described in the operating plan. One of the donut slices may be a critical success factor not at all present in the loop of another company. The number of slices of the donut will vary per company, and the size of the slices will vary depending on the investment required to carry the baton from one discipline to the next. The slices will also vary dynamically depending on the inflection points the company goes through and the pressure from the competition the company must combat or better yet, emerge from.
The correlation of the performance of the loop to finance is crucial. The use-of-proceeds in an operating plan must link directly to the infusion of money into the different disciplines, making it very easy for investors to comprehend why and how the capital requirements of a company are linked to its performance.
To implement the loop is a fairly straightforward process, albeit must be tailored to every business uniquely.
For example, starting with product development, you measure the load from support to deal with product imperfections, which then identifies how happy customers are to act as a reference or use-case scenarios for marketing, which is then used as the catalyst to generate leads for sales, the result which is then used as the impetus for further product development. Many more parameters can be used to measure how the passing of the baton performs and how real capital efficiency can be achieved.
Benefits without borders
The benefit of managing the loop, diligently, is to generate clear evidence which discipline in the loop under-performs to meet the evolving needs of the ecosystem. Upon which then the CEO is expected to take action; recalibrate the handoff of the baton, infuse more money in the discipline, so its contribution improves, or, worst-case scenario, replace the owner of the underperforming discipline.
Another benefit is that the owners of the individual disciplines, management team members, get a better understanding of how to work together towards a single objective, using the expertise of their core competency to build the ever-improving excellence and renewal of the company’s ecosystem.
Best of all, a well-oiled loop is the way to convert variable costs into fixed costs, yielding substantial capital efficiency down the road. The performance of the loop becoming the most important discussion point in well-orchestrated board meetings.
With the loop in place and well managed, it is truly much harder to fail than to succeed.