Verne Harnish’s argument is that a growing business only ever has four sets of decisions to get right: people, strategy, execution and cash. Everything else is a subheading. Get all four broadly right and growth is uncomfortable but survivable. Get one badly wrong and it does not matter how good the other three are.
The value of the model is not the list, it is the relationship between the four. They are not additive, they are limiting. Your growth runs at the speed of the weakest one, and most owners spend their attention on the decision they find most interesting rather than the one holding everything else down.
The four, and the test for each
People
The test is deliberately uncomfortable: would you enthusiastically re-hire everyone currently on your payroll? Not tolerate. Not keep because they know the system. Enthusiastically re-hire. Every name you hesitate on is a decision you have already made and are postponing.
Strategy
Can a customer point at something and say why they chose you — and is the top line growing as a result? If the honest answer to “why us” is that you were available and roughly the right price, you do not have a strategy, you have a diary.
Execution
Is the bottom line growing at least as fast as the top line, and does the work get done without heroics? Execution shows up in gross margin, in on-time delivery, in rework, and in how often somebody has to save a job at the last minute. A business that needs heroes has a process problem.
Cash
Do you have enough cash to fund the growth you are planning, and enough to absorb a bad run? Growth consumes cash before it produces it. A business can be right about the other three decisions and still die of good news.
Why the limiting idea matters
Most owners treat the four as a checklist and work on all of them a bit. That feels responsible and it wastes the year, because progress on three cannot compensate for the fourth.
If your people decision is weak, better marketing simply pushes more work through a team that will not deliver it consistently. If execution is weak, better strategy wins you clients you then annoy. If cash is weak, everything you get right becomes a reason you cannot pay a supplier in April. There is always one constraint at a time, and it is almost never the one you enjoy thinking about.
A worked example
Illustrative arithmetic rather than a client. A recruitment business billing £2.1m a year with 14 staff. Gross profit is £680,000 and net profit is £120,000. The owner wants growth and has priced up a £40,000 marketing programme to bring in more vacancies. Scored honestly out of 10: people 4, strategy 7, execution 5, cash 8.
Look at what those two low numbers mean in cash. The team takes on roughly 480 vacancies a year and converts 34 per cent of them into placements at an average fee of £4,200 — 163 placements, and the £680,000 of gross profit. But the 34 per cent is a blend. One team converts at 45 per cent because it qualifies the vacancy properly before working it. Another converts at 22 per cent because it takes anything. Bring the whole business up to the better team’s rate on the vacancies it already receives and you get 216 placements — 53 more, worth roughly £222,000 of extra gross profit, with no additional marketing spend at all.
Now price the marketing option. Say £40,000 buys 90 extra vacancies. At the current blended rate that is 30 placements, roughly £126,000 of gross profit, less the £40,000, so about £86,000 net. Less than half the return, landing on a team that is already inconsistent.
And the people score is the reason the execution score is a 5. Two consultants left during the year, each costing around £14,000 to replace once recruitment fees and a dead desk are counted. One remaining biller is very good, very difficult, and a material part of why the two left. The owner knows all of this and has known it for eighteen months. The £40,000 was about to be spent on decision two, when the constraint was sitting squarely in decisions one and three.
How to use it this week
- Score the four out of 10, alone, in ten minutes. First instinct, no discussion. Then ask two senior people to score them separately without seeing yours. The spread is as informative as the scores.
- Run the re-hire test on every name. Go down the payroll and mark each person: enthusiastic yes, or hesitation. Nothing else. The hesitations are your people decision, in full, on one page.
- Write your strategy in one sentence a customer would recognise. Who it is for, what you do that others near you do not, and what you deliberately do not do.
- Pick one execution number and measure it weekly. Conversion rate, gross margin by job, on-time completion, rework hours. One number measured every week beats a dashboard nobody opens.
- Calculate your months of cover. Cash in the bank plus undrawn facility, divided by average monthly outgoings. Under three months and cash is your constraint, whatever the other scores say.
- Work on the lowest score only, for 90 days. Park the other three. This is the instruction most owners ignore and the one that produces the result.
Owners work on the decision they most enjoy. A founder who sells picks strategy; an operator picks execution; a former accountant picks cash. The constraint sits somewhere else, so the business keeps producing the same result while the owner keeps producing effort. If your people score comes out at 8 and you have had two unplanned leavers this year, score it again.
Questions to ask yourself
- Out of 10, how would you score each of the four right now, and which one have you been quietly avoiding?
- How many people on your payroll would you enthusiastically re-hire tomorrow? What is stopping you acting on the rest?
- If a customer had to explain in one sentence why they use you rather than the next firm, what would they say?
- If revenue doubled in the next twelve months, which of the four would break first?
Where this fits in coaching
The four decisions are the frame we use to set the agenda in business coaching, because growth is rarely blocked by a lack of ideas. It is blocked by one of four decisions everybody in the business can see and nobody has been willing to name. Read it with Good to Great, which gives you a sharper way to measure the constraint, and the Goldilocks target, which stops the growth number itself being the thing that breaks.
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Frequently asked questions
How do I know which of the four is my constraint?
Score all four out of ten, then ask two senior people to score them separately without seeing your answers. The gap between your scores and theirs is often more useful than either set, because owners inflate the decision they are avoiding. People is the one most commonly overstated, since scoring it honestly means admitting there is a conversation you have not had. A quicker cross-check: if revenue doubled next year, which of the four would break first? That is usually your constraint, and it is usually the one you find least enjoyable to work on.
Can I not just work on all four at once?
You can, and it is the most common way a year gets wasted. Four half-fixed decisions leave you with four unfinished projects and a team that has stopped believing anything gets completed. The four are limiting rather than additive, so progress on three does not compensate for the fourth: better marketing pushed through a weak team produces more disappointed customers, not more profit. Pick the lowest score, work on it alone for ninety days, then re-score. Most owner-managed businesses have the capacity for one real change at a time, and pretending otherwise is how nothing gets finished.
What if my constraint is people and I cannot afford to lose anyone?
That is the position almost every owner is in, and it is why the decision gets postponed for years. Two things help. First, the re-hire test identifies who, not what you do about it — some hesitations are a training or a clarity problem rather than a wrong person, and are cheaper to fix than to replace. Second, work out what the situation already costs: unplanned leavers, rework, and the good people quietly watching what you tolerate. Anything involving dismissal or a formal process needs qualified employment advice, and coaching sits alongside that rather than instead of it.