Posted on December 4, 2014 @ 08:21:00 AM by Paul Meagher
According to Wikipedia, the
law of the minimum states that "growth is controlled not by the total amount of resources available, but by the scarcest resource (limiting factor)". The law of the minimum is the modern basis of nutrient management for soils and in practical terms means that if your soil is low in nitrogen then your plants will be nitrogen limited until you
correct this deficiency by adding nitrogen. The plants will not grow well until you meet the minimal nitrogen requirements
for your plants. The growth of you plants is dictated by the level of nutrient that is in shortest supply. This situation can
be visualized using Leibig's Barrel (after Justus von Leibig who popularized this law based on the work of Carl Sprengel).
The law of the minimum can also be applied at a higher level than nutrients. You can also talk about sunlight, water, heat,
and nutrients as the main factors and formulate a law of the minimum in terms of these higher level factors. The growth of a
plant is determined by which high-level factor is in shortest supply.
The law of the minimum is called a law because it is believed to have a wide range of applicability. It would also appear to have applications to understanding business growth as well: "the growth of a business is controlled not by the total amount of resources available, but by the scarcest resource (limiting factor)". So if you parcel up your company into various factors that contribute to its growth such as capital, equipment, labor, market, management, and so on, the factor that will control the growth of your company is the resource in shortest supply. If you want to grow a company, then you need to 1) identify what
your limiting factor is (e.g., capital, equipment, labor, market, management), and 2) take actions to correct that deficiency.
The limiting factor changes as a company grows. At first capital and markets may be the main limiting factors, but as the company grows capital, labor, management might become the main limiting factors. At each stage in a company's growth it has to re-identify what the limiting factor is and takes steps to address the deficiency. The process of growing a company is a process of overcoming the limits to growth.
The role of capital in limiting the growth of a business plays a special role insofar as capital can affect the level of the other limiting factors by adding more equipment, more labor, more advertising, and better management. Working capital is required to stay ahead of the bills but capital over and above the requirements of working capital can be used to grow the business by overcoming current limiting factors. Mind you, new equipment can also reduce the need for labor so there are some
equivalencies among the other factors, but capital has the most equivalencies (or ability to change the levels of the other factors). Capital alone can't fix a broken management structure or a wasteful production line so it is not limitless in what it can do and it is not always the limiting factor for a business.
So keep the law of the minimum in mind the next time you think about the requirements of growing your business. What is the most limiting factor now and how can I correct that deficiency? Once that deficiency is corrected, what is the next most limiting factor. Growing a business is much like gardening, ever attentive to possible deficiencies, attending to them, and then noticing or wondering about other possible deficiencies and attending to them. If you want to transition from home gardening to
market gardening, then a new list of limiting factors comes into play. Your limiting factor is either capital, labor, equipment, market, or management or some combination thereof. You need to figure it out in order to make a successful transition to the next level of growth. So don't just keep an eye on where you want to go with your business, make sure you also attend to what factor might be holding you back the most in your present circumstance and perform the necessary corrective actions.